“India’s foreign exchange reserves were placed at $ 573.9 billion as on July 29, 2022” said RBI governor Shaktikanta Das, in his monetary policy statement assessment, a few hours ahead of the official release time of 5.00 pm on Friday.
“ The Reserve Bank has used its foreign exchange reserves accumulated over the years to curb volatility in the exchange rate,” Das said. The latest reserves levels reversed the trend of depletion for four consecutive weeks in a row. It fell from $593 billion as of June 24 to $ 571.5 billion as of July 22. Foreign portfolio investors who were seen pulling out of Indian markets as global central banks particularly in the United States started tightening rates as inflation in these economies started rising.
“On the flows front we have seen net FPI flows turn positive for the last three days” said Gaura Sengupta , chief economist at . ” But the relief could be temporary”.
Many Asian central banks have used the foreign exchange reserves to defend their respective currencies. India, Thailand and Korea have seen their reserves drop by a combined $115 billion this year as they sold dollars to curb currency declines, according to Bloomberg news. “They are facing a rapid tightening of external financial conditions, capital outflows, currency depreciations and reserve losses simultaneously. Some of them are also facing mounting burdens of debt and default” the governor said in his statement.
Despite the resultant drawdown, India’s foreign exchange reserves remain the fourth largest globally. Also, India compares much better than emerging market economies as far as the external sector strength is concerned, RBI indicated.