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Informist, Friday, Dec. 20, 2024

 

MUMBAI – India's foreign exchange reserves fell to a near six-month low of $652.87 billion in the week ended Dec. 13, data released by the Reserve Bank of India showed. On a weekly basis, the reserves fell $1.99 billion. Market participants cited the RBI's intervention, preventing volatility in the domestic foreign exchange market, as one of the primary reasons for the fall in reserves.

 

Valuation losses in assets, including US Treasury notes, also put pressure on reserves, market participants said. During the week for which the reserves data was released, the yield on the benchmark 10-year US Treasury note rose 25 basis points.

 

"(Foreign exchange) reserves can be down due to revaluation effects as well as spot selling (of dollars) or giving delivery of forwards," said Ritesh Bhansali, director, Mecklai Financial Services Pvt Ltd.

 

In the week ended Dec. 13, the rupee was under pressure from a strong dollar index and importers' demand for the greenback. The Indian currency later fell past the psychologically important mark of 85 a dollar on Thursday. Importers have been continuously purchasing dollars due to fear that the Indian currency might fall sharply in the coming days.

 

The dollar index has only strengthened in recent weeks, adding to the pressure on the rupee, market participants said. After strengthening for the past couple of days, it hit over a two-year high of 108.54 on Friday. "Reserves will continue to be under pressure till the time the dollar index continues to make new highs," Bhansali said.

 

The dollar index surged after the US Federal officials, in the Summary of Economic Projections, indicated slower rate cuts in 2025, of 50 bps against their previous projection of 100 bps of rate cuts. The FOMC, early Thursday, cut the Fed funds range by 25 basis points to 4.25-4.50%.

 

Further, some market participants also indicated the RBI's delivery of its earlier dollar/rupee buy/sell forward contract to be one of the reasons for the fall in reserves. Market participants said the central bank has been rolling over some of those contracts, while delivering others.

 

According to the data by the RBI, total foreign currency assets also fell $3.05 million in the week ended Dec. 13 to $562.58 billion.  End

 

US$1 = INR 85.0150

 

Reported by Sourabh Kumar

Edited by Avishek Dutta

 

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