At the end of the previous week, reserves stood at $550.871 billion.
Analysts believe that the Reserve Bank of India’s involvement in the foreign exchange market to prevent the rupee from further weakening against the dollar is the main cause of the drop in reserves, which is partly due to valuation adjustments .
After a volatile week in which the rupee fell beyond 81 to the dollar to set a record low earlier in the session, forcing the RBI to intervene, it stabilized before the end of trade on Friday.
According to a recent Deutsche Bank report, India’s global foreign exchange reserves will continue to decline this year as a result of a widening current account deficit and central bank interventions to strengthen the rupee, which today fell beyond 81 to a historic low. The coin suffered a 1.6% loss, its worst week since April last year, with most of the losses coming in the two most recent trading sessions.
If the current account deficit widens to 4% in FY’23, according to IDFC First Bank, foreign reserves could decline to $510 billion even in a worst-case scenario. Even so, we would still be in a better position than we were in May 2013, during the Taper Tantrum, when reserves were below $300 billion.
A review of official statistics reveals that reserves are sufficient to finance imports for 8.9 months compared to 4.1 months in May 2013 and that the ratio of short-term debt to reserves is 44% compared to 60% of June 2013.