India's Forex Reserves have hit a two-year low of $528.367 billion as the Indian currency keeps continuing its decline against the Dollar. In the preceding week, the country's foreign exchange reserves were at USD 532.868 billion, and hence the drop has been a significant $4.5 billion ever since. RBI has probably intervened in the currency markets to stabilize the rupee against the ever-strengthening dollar and that perhaps is the reason why the Foreign Exchange reserves have shown a marked drop.
Nirmala Sitharaman, the Finance Minister of India has been speaking about India’s development story and strong economy during her current interactions. She recently stated that the Indian rupee is not sliding, but the US Dollar strengthening instead. Mrs Sitharaman said: "Dollar is strengthening incessantly. So obviously, all other currencies are performing against the strengthening dollar. I am not talking about technicalities but it is a matter of fact, India's rupee probably has withstood this dollar rate going up...I think the Indian rupee has performed much better than many other emerging market currencies."
She said that the Reserve Bank of India (RBI) was focused on ensuring that there isn't too much volatility and was not intervening in the market to fix the value of the Indian currency, a few days ago.
Responding to questions asked by news agency ANI on measures being taken to tackle the slide, she said: “The efforts of RBI are more towards seeing that there is not too much volatility, it is not to intervene in the market to fix the value of the rupee. Containing the volatility is the only exercise RBI is involved in and I have said before that rupee will find its level."
The dollar is also strengthening worldwide thanks to a hawkish stance of its Central Bank, the Federal Reserve and as US treasury yields have gone higher. Some of the Fed officials are of the view that job market demand remained strong and inflation pressures probably had not peaked yet, which again has had a positive impact on the dollar.
The devaluation of the rupee is a matter of concern, especially for a country that has considerable imports. The latest round of depreciation is due to adverse global growth starting with the geopolitical tensions triggered by the Russian-Ukraine war. The war pushed up product prices, leading to a record surge in inflation in the developed world, which has resulted in steep rate hikes by the US Fed. As a result of it, a flight of capital back to the US eventually resulted in depreciation for other emerging market currencies.
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