According to the latest data released by the Reserve Bank of India, in the week ending September 18, India’s foreign exchange reserves fell sharply by $14.88 billion to $765.9 billion, marking the largest single-week decline in nearly two years. To support the weakening Indian rupee, the RBI has recently continued to sell US dollars in the FX market for intervention. Combined with geopolitical tensions in the Middle East that have pushed up oil prices and capital outflows from the stock market, this has put clear pressure on foreign exchange reserves.
Behind this round of reserve drawdown is a two-pronged squeeze facing emerging markets. On one hand, rising import energy costs such as crude oil have increased demand for foreign currency; on the other, global funds have flowed out in a flight-to-safety from domestic assets. Although India previously rolled out measures to attract non-resident deposits and absorbed more than $100 billion in funds, and also conducted dollar swap operations, the rupee remains one of the relatively weaker currencies in Asia this year.
From the perspective of macro financial markets, the passive use of foreign exchange reserves by major emerging-market central banks to prop up exchange rates often further boosts safe-haven buying of the US dollar, while also tightening liquidity in local banking systems. When elevated commodity prices coincide with a strong-dollar cycle, exchange-rate defense in emerging markets typically makes cross-market capital more inclined to take a cautious wait-and-see approach.
For the crypto market, such macro liquidity disruptions are likely to show up in the short term mainly through changes in risk appetite. Emerging-market liquidity pressure is not directly linked to on-chain funds, but if the US dollar remains strong and risk-off sentiment rises, the pace at which speculative capital enters the market may slow down, and the price action of mainstream assets is also likely to follow the global macro trend volatility.
#Forex #EmergingMarkets #Rupee
Behind this round of reserve drawdown is a two-pronged squeeze facing emerging markets. On one hand, rising import energy costs such as crude oil have increased demand for foreign currency; on the other, global funds have flowed out in a flight-to-safety from domestic assets. Although India previously rolled out measures to attract non-resident deposits and absorbed more than $100 billion in funds, and also conducted dollar swap operations, the rupee remains one of the relatively weaker currencies in Asia this year.
From the perspective of macro financial markets, the passive use of foreign exchange reserves by major emerging-market central banks to prop up exchange rates often further boosts safe-haven buying of the US dollar, while also tightening liquidity in local banking systems. When elevated commodity prices coincide with a strong-dollar cycle, exchange-rate defense in emerging markets typically makes cross-market capital more inclined to take a cautious wait-and-see approach.
For the crypto market, such macro liquidity disruptions are likely to show up in the short term mainly through changes in risk appetite. Emerging-market liquidity pressure is not directly linked to on-chain funds, but if the US dollar remains strong and risk-off sentiment rises, the pace at which speculative capital enters the market may slow down, and the price action of mainstream assets is also likely to follow the global macro trend volatility.
#Forex #EmergingMarkets #Rupee