India’s foreign currency assets have dropped by USD 96 bn. This also includes sizeable valuation impact on account of FX movement, besides INR depreciation & drawdown by RBI
Download ReportValuation impact in India’s FX reserves
On annualized basis, India’s foreign currency assets (FCA) have dropped by USD 96 bn. While this has happened in the backdrop of depreciation in INR and FCA drawdown by the RBI, it’s also includes sizeable valuation impact on account of FX movement. There is no decipherable trend in valuation impact as it is a derivative of changes in non-dollar reserve currencies. In last 10-years, valuation impact has explained -120% to 258% of changes in India’s FX reserves (FXR). Our estimates suggest that sensitivity of changes in India’s FX reserves to dollar movement is currently at an all-time high (1% change in DXY index resulting in USD 4 bn change in FCA). This reflects the recent extreme volatility in case of non-dollar reserve currencies like EUR, GBP, JPY, etc.