Forex Reserves Fall For 6th Straight Week, Decline By $311 Million

India's foreign exchange (FX) reserves fell for the sixth straight week, by $311 million in the April 15 reported week to $603.694 billion, according to the Reserve Bank of India data on Friday.

That comes after FX reserves fell by $2.471 in the prior reporting week - that ended on April 8, according to the central bank data.

Dwindling forex reserves is primarily because of the dollar's rise in recent weeks, driven by the Federal Reserve's aggressive posture on policy tightening to fight surging inflation, with US policymakers openly supporting larger and faster interest rate hikes.

Inflation has spiked sharply worldwide as the Russia-Ukraine war has further distorted supply chains already disrupted by the pandemic.

The dollar index, which measures the greenback's performance versus a basket of six currencies, rose to two years high this week, breaking above the 100-level mark and hitting over a two-decade high against the yen on interest rate dynamics.

That interest rate differential has strengthened the dollar and weighed on currency reserves, with Sri Lanka and Nepal being the prime examples of that fallout.

India has not been spared, although its import cover is still significant at over $600 billion, despite the fall in its FX reserves for the sixth consecutive week.

Still, persistent capital outflows has also weighed on the rupee and the forex reserves.  

The weekly RBI report showed the FX reserve's fall was because of a decline in the foreign currency assets (FCA) - a significant component of the overall reserves.

Indeed, the FCAs - expressed in dollar terms, include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves - dropped by $877 million to $536.768 billion.

Reserves in gold rose by $626 billion to $43.145 billion, while the special drawing rights (SDRs) with the International Monetary Fund (IMF) fell by $44 million to $18.694 billion.

According to the RBI data, India's reserve position with the IMF fell by $16 million to $5.086 billion during the reporting week.