There is a continuous decline in the foreign exchange reserves. The Indian government has to make overseas debt repayment of $ 256 billion in the next 12 months. Dollar outflows will increase even if the Federal Reserve raises interest rates.
This week there was a decline of $ 88 million.
The country’s foreign exchange reserves declined by $ 878 million to $ 632.736 billion in the week ended January 7. According to the data released by the Reserve Bank of India (RBI on foreign reserves) on Friday, earlier in the week ended December 31, the foreign exchange reserves had declined by $ 1.466 billion to $ 633.614 billion. Whereas in the week ended September 3, 2021, this currency reserves had reached a record high of 642.453. According to RBI’s weekly data, the reason for the fall in foreign exchange reserves in the reporting week ended January 7 is due to reduction in foreign currency assets (FCA), which form a significant part of the total reserves.
According to RBI data, FCAs declined by $497 million to $569.392 billion during the week. Foreign currency assets expressed in dollars also include the movement of non-US currency such as the euro, pound and yen held in foreign exchange reserves. During this period, the value of gold reserves decreased by $ 360 million to $ 39.044 billion.
SDR fell by $16 million
Special drawing rights with the International Monetary Fund (IMF) declined by $16 million to $19.098 billion in the week under review. The country’s currency reserves in the International Monetary Fund also declined by $ 5 million to $ 5.202 billion.
256 billion dollars to be repaid
The country’s foreign exchange reserves are going to be tested hard this year. India has to make repayment of overseas debt of 256 billion dollars. Here the US Federal Reserve is preparing to tighten the monetary policy. An increase in the interest rate will accelerate the fall of the dollar. According to the data released by the Finance Ministry in September, foreign debt of $ 256 billion is maturing in the next 12 months. Total external debt stood at $596 billion in September 2021.
Dollar outflows will increase if the federal interest rate is raised
Talking about the monetary policy of the Reserve Bank, in the coming times, the RBI is more likely to reduce its intervention instead of protecting the currency. Inflation in America is at its highest level in 39 years. In such a situation, the Federal Reserve can increase the interest rate ahead of time. If this happens, the dollar will fall from countries like India and the pressure on foreign exchange reserves will increase. As the developed countries of the world raise interest rates, dollar outflows from emerging economies like India will increase.
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