Forex reserves fall

India's foreign exchange reserves had the steepest ever weekly fall since the global financial crisis of 2008 as the central bank sold greenback to stem the rupee’s slide as portfolio investors dumped equities and bonds in their flight to safe haven assets even as Covid 19 virus made future of economies uncertain.

Reserves fell $11.98 billion in the week ended March 20 as the central bank prevented an accelerated slide of the Indian rupee which was falling to record lows as the demand for US dollars surged. The reserves fell to $470 billion, data from RBI shows.

The central bank is expected to ensure that there is no steep fall amid volatility in the currency though it would not stand against the market forces. The rupee touched all-time low of ₹76.32 to the US dollar. Unlike in the 2013 crisis when India had a twin deficit problem, this time round the low crude oil prices is cushioning the external sector imbalances.

The last time when India’s reserves witnessed such a sharp fall was in 2008 when portfolio investors fled the Indian shores after the collapse of Lehman Brothers Holdings. Reserves had dipped by $ 15 billion during the week ended October 24, 2008. This time foreign investors are pulling out due to Covid 19’s likely squeeze on economy.

It is estimated that they have pulled out close to $15 billion from the Indian markets in three weeks of March and nearly $6 billion during the week ended March 20 as the stock plunged.

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