India’s foreign exchange reserves rose by $2.537 billion in the week ended November 18, 2022, to stand at $547.252 billion.
This increase comes on the back of the reserves skyrocketing by a whopping $14.721 billion in the preceding week ended November 11.
In the reporting week, all four components of the reserves rose -- foreign currency assets (up by $1.760 billion), gold ($315 million), Special Drawing Rights ($351 million) and Reserve Position in the IMF ($111 million).
Since March-end 2022, the forex reserves declined by $60.057 billion. In the calendar year so far, the reserves shrunk by $93.149 billion.
“About half of this year’s large decline in foreign reserves is attributable to ‘valuation effects’ (from the depreciation of non-USD currencies causing the USD-value of the reserves to decline), but the other half is on account of foreign exchange (forex) reserves being expended to slow the pace of INR’s depreciation against the USD,” Prasenjit K Basu, Chief Economist, ICICI Securities, said.
Basu expects the RBI to prefer rebuilding foreign exchange reserves over the next half year, keeping INR/Indian Rupee in the 81.5-82.5/USD (US Dollar) range, thereby also weakening against EUR/Euro, JPY/Japanese Yen, KRW/South Korean Won and GBP/Pound Sterling (as they regain some of the ground they’d lost to the USD in the Year-To-Date).
“This will ensure that INR’s NEER (nominal effective exchange rate) depreciates 1-2 per cent YoY over the next half-year, even as the INR/USD rate stays broadly stable,” he said in a report.