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India’s Forex Reserves At 2-year Low

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What has happened?

  • India’s forex reserves slumped to the lowest in over two years, marking the third straight week of decline as the Reserve Bank of India, true to its word,
  • Intervened to keep the rupee from weakening past 80 per dollar during a week when the dollar surged to over two-decade highs.
  • The RBI’s weekly statistical data showed the country’s foreign exchange reserves fell by $6.687 billion to $564.053 billion in the week ending August 19, Marking its lowest in over two years and the third week of decline in a row.
  • The quantum of fall in the latest week, $6.687 billion, was the largest since mid-July.

Down from $640 billion

  • Barring the increase in the last week of July, which seems like a statistical blip, India’s forex war chest has declined every single week since early July.
  • It has fallen for 20 of the 26 weeks since Russia invaded Ukraine in late February.
  • That slump in forex reserves by a touch over $67 billion since the Ukraine crisis and nearly $80 billion from its all-time highs last year echoes the slide in the rupee from about 74 per dollar to near 80, a level which analysts say the RBI has defended ferociously.
  • The fate of the Indian currency has been driven by the rampant dollar in international markets, driven by an exodus of capital into dollar-denominated assets and at the cost of almost every other major currency in the world.
  • The RBI has intervened and has openly said it would do whatever it takes to defend the rupee from wild volatility.

Is it a worry for Indian economy?

  • Still, India’s forex reserves are the fourth largest globally, according to RBI governor Shaktikanta Das after the latest rate-setting meeting when the central bank hiked rates for the third consecutive time.
  • A report showed that India has built up buffers against cyclical difficulties and has ample foreign exchange reserves to withstand pressure on credit worthiness, S&P Global Ratings said on Thursday.
  • The country has a strong external balance sheet and limited external debt, making debt servicing not so expensive.

  • A separate Reuters report quoting government and industry sources showed that,
  • India might offer incentives to exporters settling deals in rupees to promote the currency’s attractiveness and raise the sales of commodities to Russia, which have decreased due to western sanctions.


  • On an absolute basis, the 2008-09 global financial crisis led to a drawdown of $70 billion in the reserves,
  • Which came down to $17 billion during the COVID-19 period and stood at $56 billion as of July 29 this year due to the Ukraine invasion-related impact.
  • But for now, the current crisis is far from over and may mean a further erosion in the country’s forex war chest.

Q) Foreign exchange reserve cannot include which among the following?

  1. Banknotes
  2. Deposits
  3. Bonds
  4. None of the above




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