The Ukraine Crisis Has Destroyed Over $80 Billion in Forex Reserves

 

Foreign exchange reserves hit a two-year low for six weeks.

Since the Ukraine crisis, India's foreign exchange assets have dropped by over $80 billion, including over $2 billion in the last week as the Reserve Bank of India sold dollars to help the rupee cross 80-to-the-dollar.

Foreign exchange reserves fell by $2.234 billion to $550.871 billion in the week ended September 9, the RBI's most recent weekly statistics show.

Since Russia invaded Ukraine in late February, India's import coverage has fallen for six weeks in a row and 23 out of 29 weeks, reflecting the RBI's continued withdrawal of reserves to fight a rise in the US dollar caused by capital outflows to dollar-denominated assets.

Foreign exchange reserves have dropped more than $90 billion since late October.

Despite persistent foreign capital inflows, a widening current account deficit has not stopped import coverage from falling.

After the rupee plummeted this year from over $74 to a record high of over 80 versus the dollar, the RBI intervened to stabilize the currency.

On Friday, the RBI's monthly bulletin stated that the central bank sold $19.05 billion in spot currency in July.

Rupee market activity shows this pattern continued into August and September.

As the dollar rises to new highs against most major currencies, the loss in foreign exchange reserves will likely be the dominant focus.

The rupee had its worst week in five on Friday as the dollar touched a record high due to bets on the Federal Reserve raising interest rates and warnings from the World Bank and International Monetary Fund about sluggish economic growth and rising inflation.

A currency broker told Reuters that market participants were cautious and wanted to defend 80 rupees to the dollar.

Indian equities suffered a market slaughter on Friday after a global sell-off driven by recession concerns of the broadest and most aggressive policy tightening in decades.\

The RBI will continue to reduce reserves to protect the rupee from severe swings.

The strong dollar and widespread risk aversion will hurt the rupee's trading behavior. Sharekhan by BNP Paribas research analyst Anuj Choudhary told PTI that global markets fell after IMF spokesman Gerry Rice expressed concern about a global economic slowdown and predicted that certain nations would enter recession by 2023.

Despite a significant loss in forex reserves this year, the nation has outperformed emerging markets, whose import coverage has reached crisis levels.

The RBI's most current data shows that India's foreign exchange assets (FCA), which make up the majority of foreign exchange reserves, fell by $2.519 billion to $489.598 billion in the week ending September, down from $6.527 billion to $492.117 billion in the same week.

Dollar-denominated foreign currency assets represent the appreciation or depreciation of non-US currencies in foreign exchange reserves, such as the euro, pound, and yen.

Gold reserves rose $340,000,000 to $38,644,000,000.

SDRs fell $63 million to $17.719 billion during the reporting week, but the nation's IMF reserve position rose $8 million to $4.91 billion.