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Forex reserves fall to more than one-year low, one week ahead of rupee’s all-time low

Foreign reserves drop by around $1.7 billion, rupee hits record low a week ago

India’s foreign exchange reserves fell by $1.7 billion during May 6 to their lowest level in more than a year, a week after the rupee hit a record low, signaling further depreciation.

The decline in foreign exchange reserves in recent months has been caused by a weakening of the rupee driven by persistent capital outflows and a general surge in the dollar.
In turn, Russia’s attack on Ukraine and the resulting Western sanctions have further disrupted supply chains – leading to soaring commodity prices and runaway global inflation.

The dollar’s gains were driven by expectations of a very aggressive monetary policy path from the Federal Reserve to tackle decades of high inflation, as well as interventions by the Reserve Bank of India selling dollars through India’s state-owned banks to prop up the rupee.

The country’s foreign exchange reserves fell by $1.744 billion to $595.954 billion in the latest data for the week ending May 6, the ninth consecutive weekly decline and also since 2021, according to the RBI’s weekly statistical supplementary data. The lowest level since late March.

The data comes a week before the rupee repeatedly hit record lows.

In fact, on Monday, May 9, the rupee closed at the then all-time low of 77.44 against the US dollar. It broke above 77.50 per dollar at various times to repeatedly break its all-time lows.

On Thursday, the currency closed at a fresh all-time low of 77.50 against the dollar after a fresh intraday weak level of 77.63.

Although the rupee recovered slightly on Friday to close at 77.31 as the Reserve Bank of India intervened in markets to stem losses in the currency, this indicated a further decline in foreign reserves.

The central bank has been involved in the to support the rupee when it fell to new lows, sources told NDTV, adding that the RBI would continue to do so, albeit to control the rupee’s “rapid volatility”.

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