In a bid to stabilise the Indian Rupee, the Reserve Bank of India (RBI) has been utilizing its forex reserves, leading to a significant decline from USD 705 billion to USD 656.58 billion as of November 22, 2024, according to a Union Bank report. The move comes as persistent dollar outflows and foreign portfolio investor (FPI) exits from the equity market have driven the rupee to record lows, currently valued at 84.7225 against the USD.

The report highlighted that sustained FPI outflows have created downward pressure on the rupee. To manage this volatility, the RBI has adopted an active intervention strategy through forex reserve utilization, which resulted in a weekly decline of USD 1.31 billion and an overall drop of USD 48.30 billion from its peak.

The report also pointed to a brief fiscal slippage in the government’s balance, which entered Ways and Means Advances (WMA) for the first time since April 2023, as of November 15, 2024. However, subsequent month-end spending boosted liquidity, recovering the balance to Rs 1.3 lakh crore by November 22, 2024. This recovery is expected to bring the system back into positive territory by early December.

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Additionally, the banking sector’s credit-deposit growth gap narrowed, with deposit growth at 11.2% and credit growth at 11.1% for the fortnight ending November 15, 2024. The credit-deposit wedge turned negative by 6 basis points (bps) after being positive at 15 bps in the previous fortnight.

These developments underscore the RBI’s proactive measures to manage currency stability, address liquidity pressures, and support the broader economic landscape amid global volatility and domestic fiscal challenges.

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