The surge in foreign exchange reserves also came on a day when Commerce Ministry data show that India’s exports of goods shot up over 9 per cent in May…reports Asian Lite News
India’s foreign exchange reserves surged by $4.3 billion during the week ended June 7 to scale a lifetime high of $655.8 billion, according to the latest data released by the RBI on Friday.
The country’s forex kitty has broken the earlier record of $651.5 billion, as of May 31, that was announced by RBI Governor Shaktikanta Das on June 7, and has been rising steadily in recent weeks.
The surge in foreign exchange reserves also came on a day when Commerce Ministry data show that India’s exports of goods shot up over 9 per cent in May.
“India’s external sector remains resilient and overall, we remain confident of meeting our external financing requirements comfortably,” Das said at a press conference after the monetary policy meeting last week.
India, with an expected 15.2 per cent share in world remittances in 2024, also continues to be the largest recipient of remittances globally. Overall, the current account deficit for 2024-25 is expected to remain well within its sustainable level, he added.
An increase in the foreign exchange reserves reflects strong fundamentals of the economy and gives the RBI more headroom to stabilise the rupee when it turns volatile.
A strong forex kitty enables the RBI to intervene in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fall.
Conversely, a declining forex kitty leaves the RBI less space to intervene in the market to prop up the rupee.
(151112) -- BEIJING, Nov. 12, 2015 (Xinhua) -- Photo taken on Nov. 12, 2015 shows newly-released 100-yuan bank notes in Beijing, capital of China. China's central bank released a new 100-yuan banknote on Thursday. The design stays largely the same as its former series, but the new banknotes are harder to conterfeit and easier for machines to read. The 100-yuan note is the largest denomination of the Chinese currency. (Xinhua/Li Xin) (lfj)
According to the survey conducted by the American Chamber of Commerce in China last fall, 66 per cent of member respondents cited rising tensions in bilateral relations as a business challenge in China…reports Asian Lite News
China, for the first time, has seen more outflows of foreign direct investment than inflows as tensions rise with the US over semiconductor technology and concerns about a rise in anti-spying activity heighten risks, Nikkei Asia reported.
The State Administration of Foreign Exchange released the figures in balance-of-payments data for the July-September quarter on Friday. FDI reached minus USD 11.8 billion, with more withdrawals and downsizing than new investments for factory building and other purposes. It is the first time that a negative figure has been marked in data since 1998, according to Nikkei Asia report.
Foreign investment had remained sluggish after it witnessed a sharp fall in the April-June quarter of 2022, when the Chinese economy was in turmoil due to the zero-COVID lockdown in Shanghai, Nikkei Asia reported.
Earlier in September, the Japanese Chamber of Commerce and Industry in China, in its survey of member companies, found that nearly half of respondents said they would not invest in China at all in 2023 or invest less than in 2022.
According to the survey conducted by the American Chamber of Commerce in China last fall, 66 per cent of member respondents cited rising tensions in bilateral relations as a business challenge in China.
Earlier in August, the US announced stricter restrictions on chip and artificial intelligence investment in China. Although the US has been coordinating with China ahead of the meeting between US President Joe Biden and his Chinese counterpart Xi Jinping in November, the US remains committed to technology restrictions.
According to US research firm Rhodium Group, China’s share has already been reduced from 48 per cent in 2018 to 1 per cent in 2022. In contrast, the US share witnessed a rise from zero to 37 per cent. Meanwhile, the combined share of India, Singapore and Malaysia increased from 10 per cent to 38 per cent.
While Chinese firms have been improving their competitiveness, some foreign companies are opting to leave China. Earlier in October, Mitsubishi Motors announced that it would withdraw from production in China, according to Nikkei Asia report.
Yusuke Miura, a senior researcher at the NLI Research Institute, said, “Foreign companies are becoming increasingly concerned about authorities’ emphasis on security, and it is unlikely that their cautious stance towards China will change quickly,” Nikkei Asia reported.
China is making efforts to make its own chip supply chain in anticipation of prolonged tensions with the US. However, the procurement of necessary equipment and parts from foreign nations has been slow. If the pace of technological innovation and productivity growth witnesses a slow pace, it could put downward pressure on the economic growth of China. (ANI)
The rate futures market is pricing in a 75 per cent chance of a 75 basis-point lift-off in June and a further 200 basis points of hikes this year…reports Asian Lite News
The rupee weakened to hit a fresh all-time low early on Monday, trading beyond 77.40 per dollar, driven by investors’ preference for safety as lockdowns in China, war on the edge of Europe and fear about higher interest rates sent a nervous jolt through markets.
While on Friday, the Indian currency ended close to its all-time lows of 77.05 hit in March, it weakened sharply today and was last trading at 77.42 per dollar, according to the latest quote from PTI and Reuters.
The flight-to-safety trades have pushed the dollar strength, with bids for the greenback accentuated since Russia attacked Ukraine late in February on supply disruption fears leading to runaway inflation and higher global interest rates, bringing forward the next recession.
The dollar scaled close to its two-decade highs, gaining for a fifth consecutive week after the Federal Reserve hiked its benchmark funds rate by 50 basis points and strong jobs data on Friday there reinforced bets on further big hikes.
The rate futures market is pricing in a 75 per cent chance of a 75 basis-point lift-off in June and a further 200 basis points of hikes this year.
US inflation data this week and several Fed policymakers scheduled to speak will keep the hawkish rhetoric in place as the Russia-Ukraine in its third month shows no signs of letting up, boosting expectations for the dollar to be well-bid.
The net capital outflows have not helped the Indian currency, with foreign investors pulling out over ₹ 6,400 crore from the Indian equity market in the first four trading sessions in May and remaining net sellers for seven months to April 2022.
That has weighed on the Indian currency when international crude prices have risen sharply and traded above $100 on average for the third month on supply disruptions from the Russia-Ukraine war.
The widening trade bill as the country imports 85 per cent of its oil needs, a stronger dollar, elevated crude prices, surging inflation and expected tighter monetary policy have spooked investors.
While the RBI, in an emergency meeting last week, hiked its key interest rates, runaway inflation risks are rising even as fears of a slowdown in economic growth activity persist.
“With central banks worldwide pressing the panic button and increasing interest rates. Foreign investors continue to sell relentlessly,” Vijay Singhania, Chairman at TradeSmart, told PTI.
Despite the RBI raising rates, the expected interest rate differential dynamic and flight-to-safety trades point to a gloomy mood.
“A series of rate hikes and hawkish communication came against a backdrop of plummeting Chinese and European activity, new plans for Russian energy bans and continued supply-side pressures,” warned analysts at Barclays, Reuters reported.
“This creates the gloomy prospect of persistent inflation forcing central banks to hike rates despite sharply slowing growth.”
Indian bourses too started May on a weak note, after losing over 2 per cent in April. With inflation data for April due and International developments not too appealing, broad investor sentiment points to more downside.
“We are victims of that time when the rupee is hitting an all-time- low due to multiple reasons. To describe a few points- a stronger USD, weaker Asian currencies, rebound in oil prices, ongoing Russia-Ukraine war, FII outflow, and a surprise hike by the RBI to tackle inflation could be the major reasons,” noted CR Forex Advisors.
“Friday’s job report boosted the US yield and thus the DXY (dollar index). Moving forward, the RBI’s intention will be closely watched,” added CR Forex Advisors.
India’s forex reserves crashes
India’s foreign exchange (FX) reserves fell below $600 billion for the first time in a year, weighed by persistent capital outflows and the rupee’s weakness driven by the dollar’s broad surge in recent months.
The latest data from the Reserve Bank of India (RBI) showed the country’s FX reserves fell by $2.695 billion to $597.728 billion, marking the eighth straight week of declines. The last time the country’s import cover fell below the $600-billion-mark was during the week ending May 28, 2021.
The latest week’s data was also the lowest since end-April last year when the country was battling its worst wave of the coronavirus pandemic. Back then, hospitals across the country were scrambling for beds and oxygen in response to a deadly second surge in infections; the World Health Organization (WHO) had said in a report that India accounted for nearly half the coronavirus cases reported worldwide and a quarter of the deaths during that period.
This year, though, the fallout from the Russia-Ukraine war has weighed on global supply chains, leading to runaway inflation and, in turn, has forced major central banks on a tightening policy path.
India’s forex reserves have declined nearly $34 billion, or about 5.4 per cent, since Russia invaded Ukraine on February 24. That import cover wiped out in just two months is about what the country took to build in a year.
The fall in FX reserves started during the week ending March 11, when the rupee hit its all-time lows.
The Indian currency’s weakness was driven largely by the greenback’s broad surge led by expectations of a very aggressive US Federal Reserve’s monetary policy path and the RBI’s intervention through dollar sales by Indian state-run banks.
While the import cover is still a healthy near-$600 billion, it has fallen to its lowest in a year, and the latest trade moves in the rupee point to further erosion of the country’s FX war chest.
The country’s forex reserves consist of FCAs, gold reserves, SDRs, and the country’s reserve position with the IMF…reports Asian Lite News
A rise in US dollar strength depleted India’s foreign reserve by over $2 billion during the week that ended on March 25.
The foreign currency assets (FCAs) got negatively impacted due to the rising US dollar strength against other global currencies.The FCAs consist of global currencies and securities such as US treasury bonds.
On a weekly basis, FCAs, the largest component of the forex reserves, edged lower by $3.202 billion to $550.454 billion. As per RBI data, India’s overall forex reserves fell to $617.648 billion from $619.678 billion reported for the previous week.
The country’s forex reserves consist of FCAs, gold reserves, SDRs, and the country’s reserve position with the IMF.
However, the value of the country’s gold reserves increased by $1.230 billion to $43.241 billion.
On the other hand, SDR value fell by $44 million to $18.821 billion.
The country’s reserve position with the IMF also slipped by $14 million to $5.132 billion.
“The value of US dollar has risen, this has pulled down the value of other currencies including GBP and Euro which are also held in the reserve,” said Sajal Gupta, Head Fx & Rates, Edelweiss.
“Also the value of US bonds held in the reserve went down due to rise in US yields, thereby, reducing the overall reserve value.”
