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Indian FX Reserves Have Lost $14bn During The Last 7 Weeks

India’s forex reserves have taken a beating losing $2 billion each week for the last seven consecutive weeks.
The fall started in the middle of June with forex reserves losing $3 billion and then continued with an average loss of $2 billion per week.

While those numbers are alarming, the Indian government has one again tried to maintain a low key profile by claiming that the significant drop was nothing to be concerned about. The Reserve Bank of India (RBI) announced in April that it had hit a forex reserve high of $424.864 billion which was an all-time high.

The strong forex reserves is one of the reasons why the Indian government is not too concerned about the $14 billion loss in forex during the last seven weeks.

Many insiders note that the loss in the foreign reserves is mainly from the RBI’s attempt to stop the slide of the value of the rupee. As of this month, the rupee has dropped by 8 percent and could very well end up dropping even more in the coming weeks.

In a statement, Soumya Kanti Ghosh, the chief economic adviser of the State Bank of India group, said

This is a natural phenomenon and this is most likely happening due to RBI's stepping in by selling dollars to support the rupee. No amount of reserves is ever adequate

India Can Use Forex Reserves To Arrest Rupee Fall

India faced a similar slide in 2013 when the rupee experienced a record low of 68 to the dollar. The ex-RBI Governor Raghuram Rajan launched Foreign Currency Non-Resident Bank (FCNR-B) deposits which stemmed the fall by bringing in $32 billion in foreign investment.

The high forex reserves are a good cushion against what is happening right now and also provides currency assistance in paying off international expenses. If there is ever a need to supplement the already-high reserves, the government would be able to raise money by bonds or foreign currency non-repatriable (FCNR) deposits.

However, it is too early to call for such an action right now. Forex reserves are still above $400 billion level and there is enough to help cushion the falling rupee for a long time. Additionally, many view the price fluctuations as the result of movements on the global market.

As proof of this, India is not the only one taking a hit in the forex reserve department. China has also reported that its reserves fell from $3,125 billion to $3,111 billion in May 2018.


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