India's forex reserves to fall another $15 billion by end-2022

[nahtanbob]

India's forex reserves to fall another $15 billion by end-2022

India's fast-depleting foreign exchange reserves are likely to drop more than was predicted just a month ago by end-2022 as the Reserve Bank of India will continue to shield the rupee from the dollar's strength, a Reuters poll found.

www.reuters.com

2 minute readNovember 1, 20223:12 AM PDTLast Updated 5 days ago

India's forex reserves to fall another $15 billion by end-2022​

By Vivek Mishra
and Devayani Sathyan

[1/2] Tourists walk past a currency exchange shop at a shopping arcade in New Delhi August 20, 2013. REUTERS/Anindito Mukherjee/File Photo

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BENGALURU, Nov 1 (Reuters) - India's fast-depleting foreign exchange reserves are likely to drop more than was predicted just a month ago by end-2022 as the Reserve Bank of India will continue to shield the rupee from the dollar's strength, a Reuters poll found.
Even though the RBI has drawn down about $118 billion from its currency reserves from a peak of $642 billion over a year ago, the rupee has fallen nearly 12% during the same period. It touched a lifetime low of 83.29 per dollar on Oct. 20.

India's forex reserves were forecast to fall to $510 billion from around $525 billion by the end of this year, the Oct. 28-Nov. 1 Reuters poll of 19 economists showed. That was lower than $523 billion in a September poll.

Estimates were in a $520-480 billion range. Reserves of more than $500 billion are generally seen by most economists as adequate for India.

"The RBI governor downplayed the loss in FX reserves in his last monetary policy address, noting valuation losses stemming from a stronger dollar and higher U.S. bond yields...however, that is at best a glass half full picture," said A. Prasanna, chief economist at ICICI Securities Primary Dealership.

A few economists in the poll also cautioned forex reserves could fall more than they are currently predicting over the coming year due to a ballooning current account deficit, which according to a separate poll was expected to end the fiscal year at its widest in a decade.

"That implies further potential depletion in FX reserves that the RBI needs to account for," Prasanna said.

A drop in foreign currency assets, the largest component of India's foreign exchange reserves, is the main reason for the overall decline this year.

With the U.S. dollar expected to remain strong in the short- to medium-term that depletion trend was unlikely to reverse anytime soon.

"Till the dollar cycle turns and/or global rates start coming off, further valuation losses can potentially worsen the FX reserves adequacy metrics," said Samiran Chakraborty, chief economist for India at Citi.

HDFC Bank's principal economist Sakshi Gupta said the dollar, which has come off a recent peak, could easily reclaim those highs on higher U.S. inflation surprises.

If that happens, "consequently the rupee would then be moving towards 83.50 or even higher, which I think will trigger RBI intervention", Gupta said.

 

[CrazyZ]

Make in India is actually forcing India to import commodities, machinery and subcomponents more rapidly then any boost in exports. Indian CAD is at highs despite buying discounted Russian oil and gas using INR.....that should be an alarm signal.

 

[Indos]

India trade deficit this year will be doubled from last year, so it is already being anticipated. In full year (2022), India merchandise trade deficit will likely between 200-300 billion USD.

The merchandise trade deficit for April-September 2022 was estimated at USD 148.46 Billion as against USD 76.25 Billion in April-September 2021, which is an increase of 94.69 per cent.Oct 14, 2022

 

[CrazyZ]

Funny thing is that ballooning coal imports are one of the main drivers for India's CAD.....not oil (which they are getting from Russia in INR-Rubble transactions). It appears India has maxed out its economically viable domestic coal production.....privatization has not helped India increase coal production since the blocks offered to foreign investors....were not economically viable. Any increase in Indian coal production just means more rapid depletion of its economically viable coal reserves. At the same time Make in India requires more electricity. Only solution is higher coal imports.

 

[Cheepek]

Funny thing is that ballooning coal imports are one of the main drivers for India's CAD.....not oil (which they are getting from Russia in INR-Rubble transactions). It appears India has maxed out its economically viable domestic coal production.....privatization has not helped India increase coal production since the blocks offered to foreign investors....were not economically viable. Any increase in Indian coal production just means more rapid depletion of its economically viable coal reserves. At the same time Make in India requires more electricity. Only solution is higher coal imports.

Crude oil and other pol products are ~30% of total imports. Getting a discount doesn't mean getting cheap. It only means getting cheaper than the prevalent market rate.

 

[SoulSpokesman]

@CrazyZ

It appears India has maxed out its economically viable domestic coal production....

Not really. It is just that the govt messed up the coal sector post SC judgement in Sep 2014 which cancelled coal mines given to the private sector. Had the government gone in directly for commercial coal mining in 2015 itself rather than resort to a convoluted process which prioritised captive mining, it would have been a different story by now.

.privatization has not helped India increase coal production since the blocks offered to foreign investors....were not economically viable.

There is another thing. The government isn't really keen to let coal mines charge market prices - the moment it allows that coal mining can shoot through the roof. I think we can easily do 2 billion MT or so without serious issues. Pricing and marketing freedom will be key. And btw, presence of foreign miners is irrelevant except in underground coal mines (where about 2 billion MT of relatvely good quality coal can easily be evacuated from abandoned mines- again pricing freedom being the key)

Regards

 

[Cheepek]

And decline in foreign reserves has less to do with imports but more to do with the appreciating USD.

https://www.financialexpress.com/economy/reserve-bank-governor-shaktikanta-das-says-67-pc-of-decline-in-forex-reserves-due-to-valuation-changes/2696420/

 

[SoulSpokesman]

@Cheepek @Indos

While India has a substantial trade deficit for sure, once trade in services (think about the zillions of dollars of IT services export) and remittances are factored in the net CAD is much lower- projected at US$ 120 bn for FY 2023. We have FDI of around USD 80 odd billion (60 as equity, 20 as debt) which brings down total BOP deficit at around USD 40 billion. So even accounting for some outward FDI and portfolio exits, we are still looking at gap of 60 billion or so. By March 23, our forex reserves should be in the range of 460-80 billion which is not alarming.

Regards

 

[Thepathtoheaven]

Hope the Indian economy collapses soon and FEKU is thrown out of power.That would be a liberation for us.This stupid,illiterate chaiwala has made life hell for Indian minorities.

 

[CrazyZ]

@Cheepek @Indos

While India has a substantial trade deficit for sure, once trade in services (think about the zillions of dollars of IT services export) and remittances are factored in the net CAD is much lower- projected at US$ 120 bn for FY 2023. We have FDI of around USD 80 odd billion (60 as equity, 20 as debt) which brings down total BOP deficit at around USD 40 billion. So even accounting for some outward FDI and portfolio exits, we are still looking at gap of 60 billion or so. By March 23, our forex reserves should be in the range of 460-80 billion which is not alarming.

Regards

Indian service sector growth is slowing. American tech companies are firing employees......contractors are always the first to be let go.

 

[SoulSpokesman]

@CrazyZ

We will see when it comes to that. In any case in case of recessionary pressures, crude wont remain over US$90 and coal wont remain over US$300 either.

Regards

 

[Indos]

@CrazyZ

We will see when it comes to that. In any case in case of recessionary pressures, crude wont remain over US$90 and coal wont remain over US$300 either.

Regards

Recession have already been happening in USA in some last Quarters this year and it also has happened in Europe as well.

Yet, oil price is still at 90-98 USD per barrel (due to OPEC interverent), but gas and coal dont have any cartel like OPEC, the producer keep producing at maximum and yet the price is still around 300 USD per ton, despite recession in Western European countries and Zero Covid policy in China.

Oil price depends on the motorist and OPEC intervention, while coal and gas is related to electricity and heater, basic needs thus less likely to go down deeply even if there is recession since both gas and coal price hike is related to supply problem due to Russian invasion economic effect

Supply of gas and coal is now having inefficient way of transport due to Western European sanction on Russia energy.

If new pipe line built by Russia and Iran to supply gas to Pakistan is completed, then the pressure on LNG price will likely a bit reduced, but not much, unless Pakistan allow pipe line go through India which is unlikely to happen.

 

[CrazyZ]

Recession have already been happening in USA in some last Quarters this year and it also has happened in Europe as well.

Yet, oil price is still at 90-98 USD per barrel (due to OPEC interverent), but gas and coal dont have any cartel like OPEC, the producer keep producing at maximum and yet the price is still around 300 USD per ton, despite recession in Western European countries and Zero Covid policy in China.

Oil price depends on the motorist and OPEC intervention, while coal and gas is related to electricity and heater, basic needs thus less likely to go down deeply even if there is recession since both gas and coal price hike is related to supply problem due to Russian invasion economic effect

Supply of gas and coal is now having inefficient way of transport due to Western European sanction on Russia energy.

If new pipe line built by Russia and Iran to supply gas to Pakistan is completed, then the pressure on LNG price will likely a bit reduced, but not much, unless Pakistan allow pipe line go through India which is unlikely to happen.

Seems like recession is the only solution to the global economic challenges. If oil prices remain high.....that will keep gas and coal prices also higher, IMO.

 

[Indos]

Seems like recession is the only solution to the global economic challenges. If oil prices remain high.....that will keep gas and coal prices also higher, IMO.

Gas and Coal price is rather disconnected with oil price at this moment.

Most electricity in the world is no longer fueled by oil, but by gas and coal.

We can see when oil price was plummeting (before OPEC intervention), both gas and coal is uneffected and keep at high price.

Oil price depends on OPEC now, they can adjust supply if demand changes. Before the war, OPEC+ gets difficulty to reach agreement because of Russia doesnt want to reduce their oil production, but now the situation changes. Russia doesnt need to keep their oil production at maximum anymore because of Western nations sanction on them, what is the Russia concern now is more about price, so they are more willing now to do production adjustment than before.

 

[nahtanbob]

India trade deficit this year will be doubled from last year, so it is already being anticipated. In full year (2022), India merchandise trade deficit will likely between 200-300 billion USD.

The merchandise trade deficit for April-September 2022 was estimated at USD 148.46 Billion as against USD 76.25 Billion in April-September 2021, which is an increase of 94.69 per cent.Oct 14, 2022

India always had a trade deficit in goods offset by expatriates remittances and services exports

Make in India is actually forcing India to import commodities, machinery and subcomponents more rapidly then any boost in exports. Indian CAD is at highs despite buying discounted Russian oil and gas using INR.....that should be an alarm signal.

40+ emerging markets are in worse shape