USD/INR Sinks to 85.2000, India’s FX Reserves Slide to 5-Week Low Amid Rupee Volatility

Key Moments:

FX Reserves Decline Sharply

Figures published by the Reserve Bank of India on Friday showed that during the week ending May 16, India’s foreign exchange reserves declined by $4.9 billion to $685.73 billion. This marks their lowest level in five weeks and sharply contrasts the previous week’s increase of $4.5 billion.

India’s foreign exchange reserves consist of several components, including foreign currency assets, gold holdings, Special Drawing Rights (SDRs), and the Reserve Tranche Position in the International Monetary Fund.

Rupee Rebounds Sharply

The data was revealed as the rupee enjoyed one of its most successful days against the US dollar in years, which saw the USD/INR exchange rate decline by 0.86% to 85.2000. During the week, the USD/INR currency pair fluctuated, with movements resulting in the pair briefly climbing to 86.0400 as the pair continued being influenced by market reactions surrounding a ceasefire announcement between India and Pakistan. However, the rupee staged a strong comeback on Friday, and today’s trading session even saw the USD/INR pair drop to 85.0810.

Debt Market Developments and Other Data

India’s 10-year government bond closed at 100.87 rupees. Its yield fell by 2 basis points to hit 6.2107% as concerns regarding the US’s own yields were offset by market anticipation regarding rate cuts and the Central Bank of India making a surplus transfer of 2.69 trillion INR ($31.55 billion). Meanwhile, the one-year overnight index swap (OIS) rates fell to 5.53%. The five-year swap rate also eased, reaching 5.63% after shedding 4 basis points.