India’s foreign exchange reserves fall to $601 billion after two consecutive weekly increases

Data provided by RBI showed that India’s total foreign exchange reserves stood at $601.057 billion in the week ending June 3, 2022, down $306 million from $601.363 billion. dollars the previous week.

Meanwhile, foreign currency holdings decreased by $208 million in the week under review to $536.779 billion from $536.988 billion in the week ending May 27, 2022.

Additionally, gold reserves fell $74 million in the week ending June 3 to $40.843 billion from $40.917 billion in the week ending May 27 this year. . While the country’s Special Drawing Rights (SDRs) stood at $18.410 billion, down $28 million in the week ending June 3 from $18.438 billion in the week of May 27.

On the other hand, the reserve position at the IMF jumped $5 million to $5.025 billion in the week ending June 3 from $5.019 billion the previous week.

India’s foreign exchange reserves fell after two consecutive weekly increases. Reserves jumped $3.854 billion to $601.363 billion in the week ending May 27, and reserves climbed $4.230 billion to $597.509 billion in the week ending May 20 .

India’s foreign exchange reserves have seen a volatile move due to macroeconomic headwinds this year. However, notably, the country is still among the 12 major economies that deserve the list of major trading partners of the United States.

The US Treasury Department released its latest report on the macroeconomic and exchange rate policies of the country’s major trading partners on June 10.

According to the US Treasury Department, India is on the “watch list” of major trading partners that deserve close attention to their monetary practices and macroeconomic policies.

Besides India, the other economies were China, Japan, Korea, Germany, Italy, Malaysia, Singapore, Thailand, Taiwan, Vietnam and Mexico.

In the report, the US Treasury Department said: “The administration has made a strong case for our major trading partners to carefully calibrate policy tools to support a strong and sustainable global recovery. The Treasury also continues to emphasize the importance for all economies to publish data related to external balances, foreign exchange reserves and intervention in a timely and transparent manner.”

Talking about India’s FX intervention, the US Treasury Department report explained that the country has been exemplary in publishing its FX market intervention, both monthly spot buying and selling and forward net activity, with a two-month lag. The RBI’s net foreign exchange purchases reached $41 billion, or 1.3% of GDP, in 2021.

Further, the report states that the RBI frequently intervenes in both directions and that in 2021, the RBI bought currencies on the net in 7 out of 12 months. The RBI made large monthly purchases in January and February 2021 , followed by modest spring sales as a COVID-19 outbreak took hold. Net purchases picked up over the summer, but declined as the rupiah came under greater depreciation pressure against the US dollar in the latter part of 2021.

“The RBI’s foreign exchange purchases in recent years have resulted in a high level of reserves,” the report added.

Notably, the report from the US Treasury Department highlights that India has the fourth rank in terms of foreign exchange reserves with 569.9 billion dollars in December 2021, or 18% of GDP.

India follows Switzerland which ranks third in terms of foreign exchange reserves with 1,033.8 billion dollars, and Japan which has the second largest foreign exchange reserves with 1,283.3 billion dollars. Meanwhile, China ranks first with foreign exchange reserves of $3,250.2 billion as of December 2021.

With foreign exchange reserves of $601.057 billion as of June 3, India continues to rank fourth after Switzerland, Japan and China.

The Indian rupee settled at a new all-time low of 77.85 (tentative) against the US dollar in the interbank foreign exchange market on Friday, on selling pressure in domestic equities and strong green against a basket of currencies which dampened sentiment.

Regarding the Rupee’s performance, Jateen Trivedi, VP Research Analyst at LKP Securities, said: “The Rupee traded weakly 0.08 points at 77.85 vs. 77.77 down 0.10% approaching 78.00 thanks to strong dollar prices after the lockdown restriction in China increased further, sending commodity prices lower and dollar prices higher The rupee felt the pressure as dollar prices rose are trading above $103.50 and crude prices hold above $120 in both Brent and Nymex.

Looking ahead, Trivedi said: “The Rupee can be seen in a range of 77.75-78.00 given the current situation, US Core CPI data will give further clues for the rupee and dollar index range.”

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