Foreign exchange reserves continue to decline amid rupee plunge, down $5.2tn

The country’s foreign exchange reserves saw another massive fall in the week to September 16, as they fell by $5.22 billion to $545.65 billion, Reserve data showed on Friday. Bank of India (RBI).

While some of the decline may be due to valuation changes, currency experts said much of it is due to central bank intervention in the currency market to keep the rupee from rising. depreciate more sharply against the US dollar.

The RBI dipped into reserves to deploy dollars in the currency market, amid volatility caused by a strengthening dollar. Experts estimate that the central bank has sold about $35 billion in foreign exchange markets since April. On Thursday, the rupee closed below 80 against the dollar.

The fall in reserves as of September 16 was due to a drop in foreign exchange holdings (FCA), a major component of overall reserves, according to the weekly statistical supplement released by the RBI on Friday.

FCA fell from $4.69 billion to $484.90 billion, the banking regulator said.

Expressed in dollars, the FCA includes the effect of the appreciation or depreciation of non-US currencies such as the euro, the pound and the yen held in foreign exchange reserves.

The value of gold reserves fell by $458 million to $38.186 billion, the data showed. Special drawing rights (SDRs) fell by $32 million to $17.686 billion, the RBI said.

Explain

A cause for concern

Falling foreign exchange reserves can lead to problems for the government and the Reserve Bank in managing the external and internal financial problems of the country.

The country’s reserve position with the International Monetary Fund (IMF) fell by $31 million to $4.88 billion in the reporting week, according to the central bank.

The Reserve Bank acts as depositary and manager of foreign exchange reserves and operates within the overall policy framework agreed with the government. It allocates dollars for specific purposes. For example, under the Liberalized Remittances Scheme, individuals are allowed to send up to $250,000 per year. EF

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