RBI has spent over $41 billion defending the rupiah since February 2022

After falling to all-time lows several times over the past few months, the Indian rupee fell to new all-time lows again last week, after breaking through 79 per dollar.

And amid the rupee’s fall, it has emerged that the Reserve Bank of India (RBI) has allegedly spent more than $41 billion of its reserves since February this year to defend the national currency, the rupee. Because of this and the rising crude bill, reserves that were otherwise sufficient to cover more than a year of imports can now cover less than 10 months, according to YOU.


According to a report on India’s foreign exchange reserves by Barclays, it was stated “We estimate that the RBI has spent over $41 billion from its reserves since February, with further declines likely in spot and futures markets in the coming months. This rapid depletion of reserves indicates the ferocity of the pressures on the currency during the latest episode. Import coverage returned to single digits for the first time in more than 34 months. »

Forex reserves as of June 24, 2022 were $593 billion, up $2.7 billion from the previous week.

The RBI, according to Barclay’s, will seek to recover lost reserves when the flow cycle turns, limiting the possibility of rupee appreciation. This is similar to the strategy adopted by the RBI in the past.

“We have highlighted evidence that foreign exchange reserves insure against financial crises, such as the current global risk aversion event, which is why the RBI is accumulating reserves. This appears to have proven to be broadly correct, with the Rupee largely stable throughout the Covid crisis,” the report said.

Barclay’s report explained the need for RBI intervention on the grounds that imported inflation is a major problem and supporting the rupiah is a better alternative to curb demand through rate hikes. Second, the rupee is not overvalued in terms of the real effective exchange rate (REER), which is calculated by measuring the rupee-dollar movement with the movement of a basket of other currencies.

Third, inflation is not as worrying in India as it is in the West.


Even in the current episode, price concerns in India are relatively less severe than in other advanced economies, which are facing inflation at its highest level in several decades. RBI Deputy Governor Michael Patra noted that inflation may have already peaked in India, with price pressures likely easing faster than for global peers,” the report said.

According to the report, although last week’s imposition of higher duties on gold imports and export levies on petroleum products are beneficial at the margin, they are unlikely to “materially alter the growing current account deficit.

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