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India’s foreign exchange reserves may fall a further $35 billion this fiscal over and above the $40 billion it has already fallen since February due to rising imports, outflows and erosion in valuations. But the fall could still keep the external position strong, analysts at Standard Chartered said, as the stockpile would still be adequate to fund for more than nine months’ worth of imports.

Forex reserves have fallen to $593 billion in the week ended May 13 from a recent peak of $633 billion on February 18.

A Standard Chartered analysis shows that 45% of this fall was driven by valuation losses as the dollar gained globally, while 30% was driven by two sell/buy swap auctions of $10 billion conducted by the Reserve Bank of India in April, while the remaining 25% was driven by the actual balance of payment outflows due to rising import costs.

Standard Chartered economists Anubhuti Sahay and Kanika Pasricha expect the forex reserves to stay in the range of $550 billion to $590 billion by the end of the current fiscal, down from the record $642 billion it had touched in October 2021.

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