<p>India's foreign exchange reserves dropped to their lowest since October 2020, as the Reserve Bank of India (RBI) proactively intervened to aid the local currency in the face of a surging dollar, analysts said on Monday.</p>.<p>India's FX reserves dropped to $553.1 billion in the week ended Sept. 2, a decline of almost $8 billion from the previous week, according to data released by the RBI on Friday.</p>.<p>It was the biggest drawdown in reserves since early July.</p>.<p>In the week ended Sept. 2, the rupee had fallen to a record low of 80.12 against the dollar on prospects of aggressive monetary tightening by the U.S. Federal Reserve.</p>.<p>Last week, RBI Governor Shaktikanta Das said the central bank will anchor expectations around the depreciating rupee and intervene to prevent an overshoot, ensuring the exchange rate reflects fundamentals.</p>.<p>Vivek Kumar, an economist at QuantEco Research, pointed out that not all of the decline in reserves was due to RBI spot intervention.</p>.<p>Foreign exchange mark-to-market and maturity of forward contracts would have likely contributed to the fall, Kumar said.</p>.<p>The RBI has been regularly dipping into the reserves to shield the rupee from the volatility fuelled by US Fed's rate hikes and high commodity prices.</p>.<p>The dollar index and short-term Treasury yields have climbed to multi-year highs.</p>.<p>"RBI might as well hang on with the current strategy for a little bit longer and hope the commodity price softening continues and the dollar does not find any incremental reasons to strengthen," Kumar said. </p>
<p>India's foreign exchange reserves dropped to their lowest since October 2020, as the Reserve Bank of India (RBI) proactively intervened to aid the local currency in the face of a surging dollar, analysts said on Monday.</p>.<p>India's FX reserves dropped to $553.1 billion in the week ended Sept. 2, a decline of almost $8 billion from the previous week, according to data released by the RBI on Friday.</p>.<p>It was the biggest drawdown in reserves since early July.</p>.<p>In the week ended Sept. 2, the rupee had fallen to a record low of 80.12 against the dollar on prospects of aggressive monetary tightening by the U.S. Federal Reserve.</p>.<p>Last week, RBI Governor Shaktikanta Das said the central bank will anchor expectations around the depreciating rupee and intervene to prevent an overshoot, ensuring the exchange rate reflects fundamentals.</p>.<p>Vivek Kumar, an economist at QuantEco Research, pointed out that not all of the decline in reserves was due to RBI spot intervention.</p>.<p>Foreign exchange mark-to-market and maturity of forward contracts would have likely contributed to the fall, Kumar said.</p>.<p>The RBI has been regularly dipping into the reserves to shield the rupee from the volatility fuelled by US Fed's rate hikes and high commodity prices.</p>.<p>The dollar index and short-term Treasury yields have climbed to multi-year highs.</p>.<p>"RBI might as well hang on with the current strategy for a little bit longer and hope the commodity price softening continues and the dollar does not find any incremental reasons to strengthen," Kumar said. </p>