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India Fx reserves: India’s overall forex reserves to shrink further this year, Deutsche Bank says

India’s total foreign exchange reserves will continue to run out this year due to a mounting current account deficit and interventions by the central bank to support the rupee, Deutsche Bank said on Wednesday.

The country’s trade deficit could reach $300 billion in fiscal year 2022-23, pushing its current account deficit to about $140 billion, or 3.9% of GDP, the bank estimated in a research note. .

“If the current account deficit does indeed rise to $140 billion, the total BOP (balance of payments) deficit could reach $80 billion for FY23 as we forecast a capital account surplus of about $60 billion,” said Kaushik Das. , chief economist, India and South Asia, Deutsche Bank.

Taking into account a decline in reserves due to valuation changes, the deficit in the current fiscal year could be as large as $100 billion-$105 billion, Das said.

India’s cash forex reserves fell to $561 billion at the end of August from $607 at the end of March, while net forwards outstanding likely fell to $17 billion from $66 billion, implying a $49 billion drawdown, Das estimates.

Total forex reserves, including spot rupee and forwards, stood at $578 billion at the end of August and are likely to fall below $550 by the end of this fiscal year, Das said.

He highlighted a speech by Reserve Bank of India governor Shaktikanta Das earlier this week in which he said the central bank would aim to anchor expectations around the depreciating rupee and intervene to prevent an overshoot.

“With the RBI’s proactive currency intervention expected to continue – to smooth out volatility and avoid excessive depreciation of the rupee – foreign exchange reserves are likely to fall further from current levels,” Deutsche Bank said.

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