Forex reserves fall for 4th straight week, but that trend could reverse
India’s foreign exchange reserves have fallen by more than $1 billion in the last reported week, with the rupee hitting its lowest level for the fourth week in a row, in which it touched 80 to one dollar for the first time.
But this downtrend may change based on the movement of the rupiah and foreign fund inflows over the past week.
India’s foreign exchange reserves stood at $1.152 billion for the week ended July 22, compared to $572.712 billion for the week ended July 15, according to the latest data from the Reserve Bank of India’s weekly supplement. . decreased to $571.56 billion.
This is the fourth consecutive month for India’s import portfolio and the 20th week of decline since Russia’s invasion of Ukraine, in which foreign exchange reserves fell by around 30 and $70 billion. There was a decline from the October high of $642.45.
The collapse of the country’s currency war chest is part of a global trend in dollar-denominated assets due to rising global inflation and massive interest rate hikes by the US Federal Reserve.
Foreign wallets and institutional investors have been net sellers of Indian assets for months, pushing the rupiah to new lows. In July, the currency hit 80 against the dollar for the first time, and the rupee is down more than 7% since its inception, as it traded against the greenback at 74.
Trends can change.
The rupee saw its biggest one-day gain in nearly a year on Friday due to a sharp depreciation in the dollar. The Indian rupee hit a high of 79.17 against the dollar, its highest level since July 7.
Kunal Kundu, Indian economist at Societe Generale, wrote in a note published on Thursday: “The recent fall in commodity prices is bringing some relief to the INR, although this is only possible temporarily.”
“The growing market sentiment that the US is bearish and the resulting demand for the safe-haven dollar pose major short-term risks for the rupee,” he added. RBI’s intervention in the foreign exchange market to limit the volatility of the rupee is likely to continue,” he said.
On the back of fresh capital inflows and a weak greenback in global markets, the rupee gained 45 paise, its biggest one-day gain since October 20, 2021.
Dilip Parmar, research analyst at HDFC Securities, said: “The rupee posted its biggest one-day gain since October 20 on the back of dollar depreciation and equity appreciation. The selling of dollars by exporters as well as month-end rebalancing helped domestic equities and the rupiah. PTI.
According to RBI Chief Shakti Kanta Das, India’s central bank has zero tolerance for the uncertain volatility of the rupee. It will continue to interact with the foreign exchange market to ensure that the rupiah stabilizes at an appropriate level.
The dollar hit a six-week low against the yen amid a sharp drop in Treasury yields. Almost all Asian currencies appreciated against the US dollar.
Foreign investors ended July as net buyers of Indian equities for the first time in 10 months. July became the first month of net inflows of foreign funds after October.
Anandia Banerjee, vice president of currency derivatives and interest rate derivatives at Kotak Securities Ltd, told PTI that the dollar has weakened against the dollar due to the consequent contraction in GDP after prolonged sell-offs. on a large scale in the United States. The rupee rose.
Over the next week, further sell-offs can be seen, but we expect the pair to find strong support near the spot level of 78.80/90. The spot market range could be between 78.80 and 79.65, Banerjee said.
Foreign inflows will be a major factor determining the fate of the rupee in the coming months. So far, foreign investors have been net sellers of Indian stocks worth over $30 billion in 2022.
Traders will focus on the Reserve Bank of India’s monetary policy review next week.
“With the Fed lifted by 75bps and fears of a global slowdown still looming, the RBI may cut the repo rate slightly by 25-35bps next week,” a senior bank trader said. private. A senior private bank businessman said.
Barclays said it expects the RBI’s monetary policy committee to vote unanimously for a 35 basis point rate hike next week.
“While inflation is expected to remain elevated in the near term, we believe the MPC can assume price pressures are building and could lower the inflation forecast given a tailwind,” he said. he adds.
For the sixth consecutive month in June, retail price inflation in India remained consistently above the 7% mark and well above the central bank’s tolerance band. Yet recent months have shown less of a hold.