The past week saw a 18 paise slide in the value of the Rupee against the US dollar as the Reserve Bank of India kept its interest rate increase less intense compared to the US Federal Reserve. In order to buckle the freefall in the value of a currency, the central bank steps in to stabilise it by selling off dollars and other foreign currency as well as gold. Such an intervention by the RBI has taken a toll on India's foreign reserves, which dipped for the first time in four weeks.
The 1.5 per cent drop is the biggest since October 2022, and has taken forex reserves down to $575.27 billion for the week that ended on February 3, 2023. Of this, foreign currency reserves account for $507.7 billion, and are down by $1.3 billion. The losses in valuation are also responsible for the direction in which foreign reserves may fluctuate.
Since the US job data has been better than expected, the Federal Reserve is expected to raise terminal rates again. Concerns about it have also led to the worst drop in the value of the Rupee in two months.
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