Das said about 67 per cent of the decline in reserves during this financial year that started Apr. 1 is due to valuation changes arising from an appreciating US dollar and higher US bond yields. The governor said that there was an accretion of US$ 4.6 billion to the foreign exchange reserves on balance of payments (BOP) basis during Q1:2022-23.
“India’s other external indicators, viz., external debt to GDP ratio; net international investment position to GDP ratio; ratio of short-term debt to reserves; and debt service ratio also indicate lower vulnerability as compared with most other major EMEs6. In fact, India’s external debt to GDP ratio is the lowest among major EMEs. In the final analysis, we remain confident of meeting our external financing requirements comfortably,” said Das.
He also said a stable exchange rate is a beacon of financial and overall macroeconomic stability and market confidence.
For the rupee, he said it is a freely floating currency and its exchange rate is market determined, and the RBI does not have any fixed exchange rate in mind.
“The overarching focus is on maintaining macroeconomic stability and market confidence. Our actions have helped in engendering investor confidence as reflected in the return of capital inflows since July…The aspect of adequacy of forex reserves is always kept in mind. The umbrella continues to be strong.”
India’s foreign exchange reserves got depleted by another $5.22 billion in the week to Sep 16 to hit the lowest level since Oct 2, 2020. Foreign exchange reserves also fell for the seventh straight week.
The reserves stood at $545.65 billion as against the all-time high of $642.453 billion seen on September 3 last year, Reserve Bank of India data showed.
Reserves had fallen over $15 billion over the two preceding weeks.
While dollar outflows are the major reason behind this depletion, the change in the valuation of reserves held in global currencies other than the US dollar is also partly behind this trend.
Out of the current reserves, foreign currency assets stood at $484.90 billion while reserves held in gold were valued at $38.19 billion.
Deutsche Bank recently said that India’s overall foreign exchange reserves will deplete further this year due to a ballooning current account deficit and interventions by the central bank to support the rupee.
Despite the rampant fall, government officials have said India has fairly large reserves to tide over the turmoil in the currency markets.