Reserves fell $104 billion in the one year up to September 30 – and surged $30 billion in just the next three months. Forex reserves are at $562.8 billion as of December 30 – enough to cover around nine months of projected imports.
“I believe that the build-up of forex reserves will largely be stable. If you look at the vectors, the dollar has started weakening against the euro, so the external factor that was pushing down the currency will not be there and that’s an advantage,” said Madan Sabnavis, chief economist at
. “We still need to be watchful of the fundamentals that are declining – the trade deficit will continue to remain under pressure, given that we may see a recession in the West, and the demand for services will come down.”
Sabnavis added that foreign portfolio investors (FPI) could hold the key to building reserves. While FPIs pulled out ₹2.32 lakh crore from Indian equities and bonds in the first half of 2022, they brought back ₹92,763 crore in the second half. “I think FPIs hold the key but they have been whimsical even at the beginning of this month, but that’s something that could turn the tide,” Sabnavis added. “In uncertain situations, you can see the reserves go $10 billion up or down.”
A report by
said foreign exchange reserves will rebound to $600 billion in March 2023.
After reaching an all-time high of $645 billion in October 2021, reserves have been dropping since the central bank deployed dollars to defend the fall in the Indian rupee. The decline was $116 billion in value between October 2021 and October 2022. Foreign fund outflows, the central bank’s aggressive forex intervention, and valuation loss due to the strengthening of the US dollar resulted in the depletion of forex reserves.
“There has been some opportunistic reserve build-up by the RBI but the flows picture is still not as strong,” said Rahul Bajoria, chief India economist at Barclays Capital. “Since we are running a large balance of payments surplus it’s not as if the RBI can accumulate a lot of foreign reserves. It’s not like the RBI has been intervening very heavily. There will be periods where the RBI will be able to buy dollars but they also will have to supply dollars in other parts.”
The Reserve Bank of India has accumulated rupee liquidity worth ₹3.14 lakh crore in the December quarter alone. More than 95% of reserves get reflected in the corresponding reserve money figures.
“The size of forex reserves is comfortable and has also increased,” Governor Shaktikanta Das had said while announcing the bi-monthly monetary policy in the first week of December 2022. “India’s external debt ratios are low by international standards.”