The decline in foreign exchange reserves began in the week ended March 11, when the rupee hit an all-time low.

New Delhi:

India’s foreign exchange reserves fell below $600 billion for the first time in a year, as the rupee weakened due to continued capital outflows and a surge in the dollar in recent months.

The latest data from the Reserve Bank of India (RBI) on Friday for the week ended April 29 showed the country’s foreign exchange reserves fell by $2.695 billion to $597.728 billion, the eighth weekly decline. The last time the country’s import insurance fell below the $600 billion mark was in the week ended May 28, 2021.

The latest week’s figures were also the lowest since the end of April last year when the country was battling the worst of the coronavirus pandemic. At the time, hospitals across the country were scrambling for beds and oxygen to deal with a deadly second surge of infections. The World Health Organization (WHO) said in a report that India accounted for nearly half of the world’s reported coronavirus cases and a quarter of the deaths over the same period.

This year, though, the fallout from the Russia-Ukraine war has weighed on global supply chains, sending inflation out of and forcing major central banks down a of policy tightening.

Since Russia invaded Ukraine on February 24, India’s foreign exchange reserves have fallen by nearly $34 billion, or about 5.4 percent. The import guarantee that disappeared in just two months was roughly what the country established in a year.

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The decline in foreign exchange reserves began in the week ended March 11, when the rupee hit an all-time low.

The weakness in the Indian currency was largely driven by a general surge in the dollar on expectations that the Federal Reserve would take a very aggressive monetary policy and the RBI intervened through the sale of dollars by India’s state-owned banks.

While import protection remains close to $600 billion, it has fallen to its lowest level in a year, while the latest trade moves in the rupee point to further erosion of the country’s foreign exchange reserves.

In fact, the rupee reversed four sessions of gains on Friday, falling to 76.90, very close to a record low, with analysts saying the RBI had propped up the rupee from falling to a new record low.

According to Gaurang Somaiya, currency and bullion analyst at Motilal Oswal Financial Services, the rupee fell as a broadly stronger dollar continued to on key crosses.

“Earlier this week, the rupee rallied after the RBI decided to raise interest rates by 40 bps and CRR by 50 bps, Mr Somaiya told PTI. But the rupee’s rise after the Fed also raised rates and maintained a hawkish stance. Gains were limited, he added.

Sriram Iyer, a senior analyst at Reliance Securities, told PTI that state-owned banks are suspected of selling dollars on behalf of the central bank, limiting further weakness in the rupee.

“The Indian rupee fell against the dollar on Friday and depreciated this week as risk appetite waned amid heightened inflation concerns that could trigger more aggressive rate by global central banks,” he added.

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