The Indian rupee is currently facing several challenges, primarily driven by higher yields on US bonds and increasing crude oil prices in the global market, which have bolstered the demand for the US dollar.
Market analysts have noted that while the Reserve Bank of India (RBI) has been successful in maintaining the stability of the rupee by releasing US dollars from its reserves, this cannot be sustained indefinitely. Recent weeks have witnessed a continuous decline in India's foreign exchange reserves, putting pressure on the central bank's ability to intervene effectively.
As of pre-noon trade on Wednesday, the rupee was trading at 83.27 against the US dollar, slightly down from its previous rate of 83.25.
The RBI has been actively intervening in the foreign exchange market throughout October to prevent the rupee from slipping below 83.29 against the US dollar, according to traders.
Data released by the RBI on October 27 indicated that India's foreign exchange reserves had decreased by $2.36 billion to reach $583.53 billion in the week ending October 20. This followed a slight increase of $1.15 billion in the previous week, reversing a consistent decline over the preceding five weeks.
The country's foreign exchange reserves had dipped by $14.166 billion to a five-month low of $584.74 billion during the week ending October 6. The recent decline has further eroded these reserves.
A significant reduction in the country's foreign exchange reserves limits the RBI's capacity to intervene effectively in the market, potentially leading to a weaker Indian currency as the central bank's ability to stabilize the rupee diminishes. This situation underscores the need for careful management and strategic measures to address the challenges facing the Indian rupee.
(With Agency Inputs)
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