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India’s reserves to fall another $15 Billion

According to a newly launched poll report by Reuters, India’s forex reserves are depleting in light of the US Dollar gaining value against the Indian rupee

What's happening: India's forex reserves are fast depleting as the poll by Reuters shows a drop of $15 Billion from to fall from around $525 billion to $510 billion by the end of this year.

Why this matters: Given the context of the rupee value dropping far lower than it has in the years preceding it, India’s economy is at a precarious stage.

  • RBI has reduced its currency reserves by about $118 billion from a peak of $642 Billion over a year ago, the rupee has fallen nearly 12% during the same period.

  • It hit an all-time low of $83.29 on Oct 20.

What are the estimates: Estimates ranged between $520 - 480 billion. Most economists believe that India's reserves of more than $500 billion are adequate.

  • With the US dollar expected to remain strong in the short to medium term, India's depletion of foreign currency assets, the largest component of its forex reserves, is unlikely to reverse anytime soon.

What else: According to a separate poll, a few economists in the poll warned that forex reserves could fall more than they are currently predicting in the coming year due to a ballooning current account deficit, which was expected to end the fiscal year at its widest in a decade.

What does the future hold: According to RBI data released in November, India’s foreign exchange reserves increased by $6.56 billion to $531.08 billion in the week ending Oct 28.

  • Spot forex reserves, on the other hand, have fallen from a high of $607 billion in late March to a record low of $642.45 billion on September 3 of last year.

Basically: India’s reserves are likely to drop far more drastically than predicted just a month ago while the RBI shields the Indian rupee against other currencies.


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