India’s Forex Reserves Have Dropped Below $600 Billion:
India’s forex reserves have dropped below $600 billion, plunging by about $45 billion since September 3, 2021, when forex reserves stood at an all-time high of $642 billion.
Reasons behind drop in India’s forex reserves:
- The drop is because of a fall in the dollar value of assets held as reserves by the RBI.
- The demand for dollars remained high as the Russia-Ukraine war led to a spike in oil and commodity prices.
- Capital outflows by foreign portfolio investors (FPIs): FPIs pulled out $21.43 billion since September 2021 as the US Federal Reserve started monetary policy tightening and interest rate hikes.
- Effect of gold prices: Decline in gold prices has also played a part in the decline in foreign exchange reserves.
- Indian rupee fell to an all-time low against the US dollar, breaking through the 77 rupees to a dollar threshold and trading at 77.63 on Thursday (12th May).
- If the rupee continues to fall, the Reserve Bank of India will be forced to interfere in the forex market by selling dollars from its foreign exchange reserves.
- If the RBI prioritises maintaining the amount of foreign exchange reserves, the rupee could depreciate.