India’s foreign exchange falls by $2.38 billion to $360.06 billion
The Dollar Business Bureau
India’s forex reserves fell by $2.38 billion to $360.60 billion in the week to December 16, as a result of outflow of foreign investor funds and depreciation in foreign currency assets that started after the Federal Reserve decided to hike rates by 25 basis points, which prompted investors exposure to emerging markets.
The outflow of foreign investor funds compelled the Reserve Bank of India (RBI) to sell dollars in order to meet the demand for the greenback.
During the week, foreign investors cut exposure to Indian debt and equity to almost $500 million, while the rupee depreciated by over 35 paise, closing at 67.77 on December 16.
The decline in the Indian currency was primarily led by the dollar’s phenomenal rise that started after President-elect Donald Trump’s victory in the US Presidential elections last month.
“The rupee appeared to be fairly resilient when the FCNR (B) redemptions became due and was well managed by the RBI. The shock, however, has been administered in the form of the US elections where there is a perception that the new government would be more ‘closed’,” said CARE in a report on Friday.
The rating agency said it is expecting that the Donald Trump government will be aggressive with fiscal stimulus to the economy, which will raise the spectre of inflation, thereby encouraging the Federal Reserve to increase interest rates further.
The decline in Indian currency also meant that the RBI’s foreign currency assets depreciated in the period under review. Foreign currency assets declined $2.35 billion to come in at $336.90 billion from the end of the previous week.
The US rate hike could mean that the RBI-held US Treasury will also depreciate, which may have led to a significant drop in overall reserves. India’s gold reserves for the week under review stood at $19.982 billion, unchanged from the last week.