Foreign exchange reserves fell from $897 million to $572.88 billion in the past week. What you should know

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India’s foreign exchange reserves fell by $897 million in the week ending August 5, compared to an increase of $2.315 billion the previous month. A sharp drop in foreign exchange holdings (FCA) dragged down total reserves during the week. In addition, a marginal decline is observed in the reserve position at the IMF. While gold and SDR reserves rose during the week. Meanwhile, the Indian rupee remains close to 79.75 against the US dollar, while inflation has eased slightly, however not eroding the upward trend in rates ahead. When it comes to foreign funds, so far August has seen the biggest buys so far in 2022.

According to the latest RBI data, India’s total reserves stood at $572.978 billion in the week ending August 5, down $897 million. During the week ending July 29, 2022, total reserves jumped by $2.315 billion.

In the past week, FCA recorded a decline of $1.611 billion to $509.646 billion. FCA is the primary instrument for measuring India’s total foreign exchange reserves. During the week ending July 29, FCA recorded an increase of $1.121 billion.

Meanwhile, gold reserves continued to outperform FCA for the second week in a row rising $671 million to $40.313 billion. However, the latest weekly gold reserves are below the $1.140 billion jump recorded in the week ending July 29.

In the week ending August 5, SDRs climbed $46 million to $18.031 billion. While the reserve position at the IMF fell from $3 million to $4.987 billion during the week.

Earlier this week, S&P Global Rating said India’s economy can handle some erosion of its foreign exchange reserves as its external position is very strong.

The US-based rating agency also said high global commodity prices and capital outflows have put pressure on the Indian rupee’s exchange rate and depleted foreign exchange reserves. However, S&P does not believe India’s economy is cause for concern.

On Friday, the Indian rupee stood at 79.74 against the US dollar on the interbank foreign exchange market, down 12 paisa from the previous day. This came amid a strong greenback against a basket of currencies and a surge in crude oil prices that offset the impact of buying sentiment in domestic equities.

Although US inflation remains closer to a multi-decadal level, July’s decline to 8.5% raised expectations of an easing of the aggressive monetary policy approach and a hike in the interest rate. guiding interest at a slower pace. Inflation was 9.1% in June 2022.

IIFL Securities, in its Currency Mantra Report dated Aug. 12, said on US inflation data that has slowed more than expected, the latest inflation report makes a 50 basis point hike more likely. at the September meeting rather than a 75 basis point increase, although much will depend on the August CPI release next month.

Not only did the United States see decelerating inflation data, but India also saw its consumer price index drop and hit a 5-month low. In July, Indian inflation fell to 6.71% from 7.01% in June. However, inflation continues to remain above the RBI comfort zone of 6% for the seventh consecutive month.

On the economy and markets, Arafat Saiyed – Senior Research Analysts at Reliance Securities said: “The RBI raised interest rates by 50 basis points to 5.4% to curb inflation. The RBI raised interest rates by maintained a real GDP growth forecast of 7.2% and a CPI inflation forecast of 6.7% for FY23, assuming the average crude oil price for the Indian basket is 105 $ per barrel.The Indian economy is facing global forces such as geopolitical tensions, growing financial market volatility, tightening financial conditions and fears of recession.The Russian-Ukrainian war continues to play a key role in affecting global markets.”

In its August policy, RBI raised the repo rate by 50 basis points, bringing the rate to 5.40%. Overall, so far this year, the repo rate has risen 140 basis points to rein in multi-year high inflation.

Saiyed added: “Indian equities have rallied strongly over the past 2 months, the rise in the repo rate coupled with inflation is likely to impact the market in the near term. However, we expect a strong economic rebound. , normalized commodity prices, inflation in a targeted range and better visibility in 2HFY23.”

Meanwhile, foreign portfolio investors (REITs) made their biggest purchase so far in 2022, in the equity market with an influx of funds from 22,453 crores so far in August.

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