Statsguru: Six charts show India's declining foreign exchange reserves

On Friday, data released by the Reserve Bank of India (RBI) showed that India’s foreign exchange reserves further declined by $3.8 billion. The country’s foreign exchange reserves have fallen by $108.2 billion to $524.5 billion since the beginning of the year (chart 1). However, India is not the only country to witness a decline in foreign exchange reserves. A Business Standard analysis shows that until September-end, forex reserves for Bangladesh and Vietnam had declined more than India’s. Among the BRICS economies (excluding Russia), India suffered the maximum decline in forex reserves (chart 2). 

The rupee has depreciated 11 per cent against the US dollar since the beginning of the year. In January, the currency was trading at 74.26 against the dollar. On October 27, it closed at 82.5 (chart 3). The rupee, though, is not the worst affected currency. Chinese renminbi has declined 13.4 per cent; yen has depreciated 26.4 per cent. The Brazilian real, on the other hand, has appreciated against the dollar (chart 4).

Further analysis of real effective exchange rate (REER) against a six-currency basket indicates that in real terms, the rupee has been appreciating. An appreciation does not bode well for exports. In September, the REER value was 105.2 compared to 102.3 in 2021-22 (chart 5). Last week, the European Central Bank announced another 75 basis points (bps) rate hike, taking the policy rate to 1.5 per cent. While India’s central bank has raised rates by 190 bps since the beginning of the year, the quantum has been lower than the Bank of England, the European Central Bank and the Federal Reserve. In the UK and the EU, rates have increased by 200 bps, whereas rates in the US have gone up by 300 bps since the beginning of the year (chart 6). RBI has scheduled an off-cycle meeting for November 3.

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StatsGuru is a weekly feature. Every Monday, Business Standard guides you through the numbers you need to know to make sense of the headlines