RBI Governor blames rising US dollar, higher US bond yields for decline

The Reserve Bank of India Governor said that around 67 per cent of the decline in the current fiscal year was due to valuation changes due to a stronger US dollar and higher US bond yields.

How do we stand against other emerging market economies and other countries, and almost in all parameters, our vulnerabilities are less than most of the other emerging market economies. At a post-monetary policy press conference, Das said this point to dispel any public notion.

The RBI s declined to a two-year low of $537.52 billion as on September 23, 2022 after a finance ministry signaled earlier this week that it was not in favour of selling the US dollar to defend any particular level of the economy. The headline reserves fell by $94 billion from $631.53 billion in late February when Russia invaded Ukraine. The $553 billion worth of reserves represents an import cover of nine months for the current fiscal year, according to a statement earlier this month. The import cover was in place for 15 months in September 2021.

In April-June, Das said that India had witnessed an increase of $4.6 billion in on a balance of payments basis, and that the current level of reserves represented strong buffers, taking into account external sector vulnerabilities.

The has depreciated 8.6 per cent against the dollar so far in the year. Since September 21, the pace of the rupee's depreciation has been aggravated since when the Federal Reserve signaled a longer than expected US rate hike cycle. Since then, the domestic currency has lost 1.7 per cent.

Das reiterated on Friday that it does not target any particular level for the domestic exchange rate and only intervenes in the market to smooth out excessive volatility.

India's other external indicators, viz. The ratio of short-term debt to reserves and debt service ratio, as well as the external debt to GDP ratio, net international investment position to GDP ratio, and debt service ratio, also indicate lower vulnerability as compared to most other major EMEs, Das said on Friday.

The debt-to- GDP ratio fell to 19.4 per cent at the end of June 2022 from 19.9 per cent at end-March 2022, the said.

At the end of June 2022, short-term debt on residual maturity basis constituted 45.4 per cent of total external debt compared to 43.2 per cent at the end of March and accounted for 47.6 per cent of foreign exchange reserves. The debt that matures in a year is called short-term debt.

The RBI stressed that their strategy would be focused on keeping investor confidence and anchoring expectations, signaling that FX interventions are likely to continue and focussed on defending extreme volatility in the rupee, HDFC Bank's Treasury Economics Research team wrote.

The absence of any additional measures to shore up reserves and attract capital is indicative of RBI s comfort with the current level of foreign exchange reserves as well as the level of global risks, and we expect a range of 81-82 in the near-term, they wrote.