Foreign Currency Reserves: The fall in foreign exchange reserves reminded me of the 2013 Taper Tantrum


Taper Tantrum In 2022: The Reserve Bank of India is continuously selling dollars from its foreign exchange reserves to stop the weakness in the domestic currency due to the selling of foreign investors. The way it is using its foreign exchange reserves to hold the rupee, it has reminded me of 2013. Even at that time, RBI used its funds to arrest the fall in the rupee and prevented a major fall in the rupee against the dollar.

Funds reduced by $38.8 in 6 months
According to the data released on Friday, September 17, 2022, the RBI sold $38.8 billion from its foreign exchange reserves between January and July in the current year 2022. In which the RBI sold $ 19 billion in the month of July alone. The same thing happened in August when the rupee went below the level of 80 rupees against a dollar for the first time. RBI’s forward dollar holding has come down from $64 billion in April to $22 billion.

Reminded of taper tantrum
In 2013 too, the RBI sold $13 billion from its foreign exchange reserves between June and September. Then in May 2013, the US Federal Reserve indicated that it would halt its bond-buying program that had been in place after a sudden sell-off in global stocks and bonds as a result of the global financial crisis. This meant that the Federal Reserve would indiscriminately stop the money supply. When the US Central Bank said this, it was assumed that interest rates would move back upwards. After which investors believed that there was no need to stay in emerging economies anymore, so they withdrew their money overnight. It was named Taper Tantrum. Even then, the rupee had weakened due to selling by foreign investors. RBI had sold dollars from its foreign exchange fund.

$92 billion decrease in 11 months
India’s foreign exchange reserves have come down from the level of $ 642 billion in October 2021 to $ 550 billion. The selling of the dollar has reduced the fund, as well as the fall in currencies such as the euro and yen has affected the foreign exchange reserves. However, despite the decrease in foreign exchange reserves and increase in imports, we have enough foreign exchange reserves to import for the next 9 months. During the taper tantrum in 2013, only 7 months of foreign exchange reserves were left for imports.

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