The Reserve Bank of India is prepared to sell a sixth of its foreign exchange reserves to defend the rupee. At the current rate, that will take just five months.
India's reserve has dropped $52 billion since the beginning March but $21 billion of that decline has occurred in the past month. As much of the reserve is likely held in dollars, and dollar has gained hugely, the entire drop is likely due to intervention and the rising dollar may actually be masking the scale of dollars sold.
Despite this vast intervention, USD/INR is pinned to the record high and with energy prices elevated and the Federal Reserve set to raise interest rates much further, the rupee is unlikely to get any relief soon.
Should reserves keep falling at the current pace, $100 billion may only last until the end of this year when US interest rates are expected to reach the perceived terminal point for this cycle. If they don't, India may need to spend a great deal more just to hold INR at an extremely weak level which feeds inflation.
Published 21 July 2022, 10:42 IST