This is the third consecutive week of decline in foreign exchange reserves after a temporary reversal. Over the past three weeks, reserves have shrunk by $10.785 billion to $590.588 billion, according to the latest data from the Reserve Bank of India.
Economists forecast that India’s foreign exchange reserves, which provide a cushion against any external risk, could fall further to around $565 billion by the end of FY23 as the Asian economy draws its account. capital to finance current account deficits, which are expected to widen to more than 3 percent of GDP in FY23.
“Capital flows will be important to finance the deficit. However, REITs have remained net sellers in the domestic market over the past 8 months, which will lead to a decline in the overall capital account surplus,” said Aditi Gupta, Economist at (BoB).
In 2022 through June 22, FDI outflows from India totaled $28.5 billion, in line with other emerging market trends.
“Record portfolio outflows, particularly in equities, and rising dollar funding costs will keep capital flows negative, at least in the short term. This means that foreign exchange reserves, which have fallen by more than $40 billion since October 2021, are expected to decline further, to around $565 billion by March 2023,” the Barclays chief executive said last week. and Chief Economist for India, Rahul Bajoria.
At the current rate of $5 billion in outflows per month, REIT outflows in FY23 may reach $60 billion, putting further pressure on India’s balance of payments, said Gupta of the Bob. “However, investor sentiment could pick up in the latter part of the year. In such a case, REIT outflows could be limited to $30-40 billion in FY23,” he said. -she adds.
India recorded its highest ever foreign exchange reserves of $642.453 billion on September 3 last year.