Deutsche Bank said on Wednesday that its overall foreign exchange reserves will deplete further this year due to ballooning current account deficits and central bank interventions to prop up the rupee.
The bank estimated in a research note that the country’s trade deficit could rise to as much as $300 billion in the 2022-23 fiscal year, bringing the current account deficit to about $140 billion, or 3.9% of GDP.
said Kaushik Das, Chief Economist, India and South Asia, Deutsche Bank.
Due to lower reserves due to changes in valuation, the current fiscal deficit could reach $100 billion to $105 billion, Das said.
India’s spot foreign exchange reserves fell to $561 billion at the end of August from $607 at the end of March, while net probable futures contracts fell to $17 billion from $66 billion, implying a drawdown of $49 billion, Das estimates.
Das said total foreign exchange reserves, including spot and forward rupees, settled at $578 billion at the end of August, and are likely to fall below $550 by the end of the current fiscal year.
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 stabilize expectations about the devaluation of the rupee and intervene to prevent overshoot.
“With the expectation of continued proactive intervention in the currency market from the Reserve Bank of India – to mitigate volatility and prevent excessive depreciation of the rupee – FX reserves are likely to decline further from current levels,” Deutsche Bank said.
(Reporting by Namesh Fora; Editing by Sumiyadep Chakrabarti)