India’s foreign exchange holdings decreased in late April as officials worked to support the rupee amidst global interest rate changes causing portfolio outflows. According to data from the Reserve Bank of India, the stockpile dropped to $637.9 billion as of April 26, down $2.4 billion from the previous week’s $649 billion record high. The RBI intervened in currency markets to prevent the rupee from sliding further, as traders anticipated higher US interest rates. Foreigners selling Indian bonds and repatriating funds could further impact the currency.
Economist Gaura Sen Gupta noted that the decline in FX reserves in April was due to revaluation losses and net dollar sales by the RBI to stabilize the rupee’s volatility. India holds a significant amount of foreign exchange reserves to protect against sudden capital flows, with RBI Governor Shaktikanta Das calling it “insurance against spillover risks.” As India prepares to join JPMorgan Chase & Co.’s global indexes in June, global investors are closely monitoring the country’s currency and bond market.
In April, foreign funds sold nearly $2 billion of Indian sovereign and corporate bonds, marking the highest level of net sales since May 2020. Chief economist Sonal Varma emphasized that reserves are India’s primary defense and should be used to manage volatility in both directions. The RBI may also absorb inflows to prepare for potential outflows in the future.
Although India has been criticized by the US Treasury for its currency management practices, it was not included in the November 2023 currency manipulator watch list. Overall, India’s efforts to safeguard its currency and manage foreign exchange reserves reflect its commitment to maintaining stability in the face of global economic uncertainties.