India’s foreign exchange reserves are facing significant pressure, dropping to a 10-month low of $634.5 billion as of January 3. The Reserve Bank of India (RBI) reported a decline of $5.7 billion for the week, continuing a worrying trend after the reserves had fallen by over $17 billion in the previous weeks. This sharp decrease reflects both the revaluation of assets and the RBI‘s ongoing interventions to stabilize the rupee, which has been under significant strain.
The rupee itself has faced mounting challenges, hitting an all-time low of 86.04 against the US dollar on Friday. Analysts have attributed this to the strengthening of the US dollar, coupled with concerns over India’s economic slowdown and the outflow of foreign funds. As the dollar grows stronger, capital inflows into India have slowed, amplifying the pressure on the Indian currency.
This drop in reserves and the rupee’s struggles have come at a time when global economic conditions are uncertain, with rising oil prices and volatile stock markets adding to the challenges. Crude oil’s price surge is particularly concerning for India, as the country is a major importer of oil.
In a bid to support the rupee, the RBI has been actively intervening in the foreign exchange market, but experts caution that this approach is creating its own set of challenges, such as tightening liquidity in the banking system.
For India, these developments underscore the growing economic pressures that are making it harder for the rupee to stabilize, and the situation is expected to remain volatile in the near term.
