RBI reserves fall to lowest level since October 2020

The reserves have dropped to their lowest level since October 2020, due to the weakness of the rupee over a year and depreciated 9.7 per cent against the over a year. The fall in reserves has widespread implications, writes Bhaskar Dutta.

The headlines fell to $545.65 billion as of September 16, 2022. Some of the fall is due to RBI intervention in the forex market due to revaluation in the face of a stronger dollar, but analysts say a major part of the fall is due to revaluation in the face of a stronger dollar.

Liquidity operations: Liquidity surplus in the banking system, as measured by the RBI's absorption of excess funds, has gone down sharply since September 2021. On September 20, 2022, liquidity fell for the first time since May 2019 and slipped into a deficit for the first time since May 2019. Since then it has hovered around neutral-to-deficiency liquidity.

FX Intervention: The RBI's dollar sales in the spot foreign exchange market have gone up markedly over the last few months, with the central bank selling $23 billion in June and July 2022 to protect the rupee from excessive volatility.

In FY 23, the RBI s net outstanding forwards purchases have gone up sharply as RBI has been taking delivery of its forward dollar purchases in order to prevent headline reserves from falling too quickly.