India's forex reserves will fall.

 

By 2022, India's foreign exchange reserves will have hit their lowest level in more than two years as the Reserve Bank of India protects the rupee from the stronger dollar, according to a Reuters poll.

The RBI has lowered its foreign exchange reserves by roughly $100 billion to $545 billion from a peak of $642 billion a year ago, and more is on the way in a bid to stem the rupee's plunge to a historic low against the dollar.

A Reuters poll of 16 analysts conducted on September 26–27 predicts that these reserves will decline by $23 billion to $523 billion by the end of the year. That would be the lowest level in two years.

$500-540 billion was forecast.

That means the RBI will continue to drain its foreign exchange reserves at a rate not seen since the 2008 global financial crisis.

The US Federal Reserve has burnt up reserves far quicker than during the taper-tantrum in 2013.

India's situation is identical a decade later. In spite of continuous dollar transactions and promises for more, the rupee hit a record low of 81.95 per dollar on Wednesday.

Sakshi Gupta, chief economist at HDFC Bank, says, "With the last rupee surge, I expect the RBI to continue intervening to perhaps not keep a particular level of the currency, but certainly lessen volatility."

As the rupee and current account deficit rise, "we'll see additional interventions in the days ahead, draining FX reserves by the end of the year."

A few analysts in the survey warned that the increasing current account deficit, which was expected to conclude the fiscal year at its biggest in a decade, may lead overall FX reserves to decrease more than they predicted in the future year.

The RBI's slow rate hikes contributed to the decrease.

A separate Reuters poll predicts the Fed will raise rates by 150 basis points over the following few months, from near-zero in March to 3.00–3.25%.

The RBI started raising rates in May and has only raised the repo rate by 140 basis points. This cycle's expected increase is 60 bps, with 50 due this week.

Standard Chartered's Anubhuti Sahay said the RBI should reduce intervention shortly to allow INR to trade more in line with fundamentals.

According to this declaration, our foreign exchange reserves should be sufficient for two to three years.