Mumbai: A recent report from Union Bank of India indicates that India's foreign exchange reserves have decreased from $705 billion to $656.58 billion due to the central bank's intervention to manage currency fluctuations.
The report highlights that the Reserve Bank of India (RBI) is taking measures to mitigate currency volatility, which has been exacerbated by ongoing dollar outflows that are exerting pressure on the Indian Rupee.
It points out that continuous outflows from foreign portfolio investors (FPIs) in the equity market have contributed to the rupee reaching unprecedented lows. In response, the RBI has been drawing on its forex reserves, which stood at $656.58 billion as of the week ending November 22, 2024.
The report states, "Ongoing FPI outflows from the equity market have caused the rupee to depreciate to record levels. Nevertheless, our Central Bank is likely managing this volatility through the use of forex reserves."
This represents a decline of $1.31 billion for the week. Additionally, forex reserves have decreased by $48.30 billion from their peak of $705 billion.
The report also discusses the government's fiscal situation, noting that for the first time since April 2023, the government's balance has entered Ways and Means Advances (WMA) as of November 15, 2024.
The total value rebounded to Rs 1.3 lakh crore by the week ending November 22, 2024. This recovery was attributed to increased government spending at the end of the month, which bolstered liquidity and is anticipated to restore the system to a positive state by early December.
Furthermore, the report pointed out a reduction in the credit-deposit growth disparity within the banking sector. According to the latest position statement from the RBI, deposit growth was recorded at 11.2 percent, while credit growth reached 11.1 percent for the fortnight ending November 15, 2024.
As a result, the credit-deposit gap shifted back to a negative position of 6 basis points (bps), following a positive reading of 15 bps in the preceding fortnight.
These trends underscore the RBI's proactive strategies to manage liquidity, ensure currency stability, and support the overall economic framework in the face of persistent global uncertainties and domestic fiscal issues.
Nevertheless, the Rupee continues to weaken, having reached 84.7225 against 1 USD at the time of this report.
