India’s armoury of foreign exchange reserves is seen depleting in the recent weeks. Reserves dipped $897 million during the week ended January 7 as the Reserve Bank sold dollars to meet dollar demand to touch $632.7 billion. Both foreign currency assets as well as value of gold in reserves dipped during the week by $497 million and $360 million respectively, the latest Reserve Bank data shows.
Market analysts point that there has been a broad-based dollar demand as the imports have been rising on rising crude and commodity prices. Besides, foreign portfolio investors have also not been very active in the markets. In the absence of strong dollar inflows, the Reserve Bank likely sold dollars to rein in the value of the rupee which was seen weakening against the dollar as foreign investors pulled out huge amounts of dollars in the preceding weeks.
The Fed announcement that it could raise rates much earlier than market anticipated could lead to further pull-out and draw-down of foreign exchange reserves. As for the near-term outlook, “The focus is on tonight’s US non-farm payrolls report. It is a big data to digest before the Fed policy as it will help gauge the state of US employment and will carry some implication on this policy outcome” said Emkay Global Financial Services in a note.
The reserves growth this year may not keep the same pace that we saw in 2020 and 2021 when both importers dollar demand was not so strong and at the same time the country witnessed strong capital inflows. Besides, over $200 billion worth debt comes up for repayment in the next 12 months.
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