Moreover, India's Foreign Exchange Reserves Will Continue to Decline

Despite the Reserve Bank of India's (RBI) efforts to defend the Indian rupee against a rising US dollar, those reserves are expected to drop to their lowest level in more than two years by the end of 2022, according to a poll by Reuters.

The Reserve Bank of India (RBI) has slashed its foreign exchange reserves by about $100 billion, from a height of $642 billion a year ago, to $545 billion, and further cuts are on the way in an effort to stem the fall of the rupee to a record low against the dollar.

The median estimate from a Reuters survey of 16 economists conducted on September 26-27 is that these reserves will fall by another $23 billion, bringing the total for the year to $523 billion. If achieved, that would be the lowest point in almost two years.

There was a wide variety of estimates, from $500 million to $540 billion.

This means that the RBI's foreign exchange reserves will continue to decline at a rate not witnessed since the global financial crisis of 2008.

Reserves are being depleted at a much higher rate than they were during the taper-tantrum period in 2013, when the US Federal Reserve suddenly stopped government bond purchases.

India is still struggling ten years later. Despite continuous dollar sales and expectations for more, the value of the rupee has dropped against the dollar by about 10% so far this year, and on Wednesday it reached a record low of 81.95 per dollar.

"With the last gain we have witnessed in the rupee," said HDFC Bank's chief economist Sakshi Gupta, "I expect the RBI to continue intervening to perhaps not try to keep a particular level of the currency, but surely try to lessen volatility."

We would see additional interventions in the days ahead, leading to a greater drain in the FX reserves by the end of the year, as pressure on the rupee and the current account deficit increase.

Though the increasing current account deficit was forecast to conclude the fiscal year at its biggest in a decade, a minority of economists in the survey expressed concern that overall FX reserves would fall more than they projected throughout the following year.

One contributing factor to the depletion is the Reserve Bank of India's (RBI) inability to raise interest rates as swiftly as the Federal Reserve of the United States (Fed).

The Federal Reserve is expected to raise interest rates by 150 basis points over the next few months, taking them from near zero in March to 3.00-3.25%, according to a separate Reuters poll.

The RBI, which has been gradually increasing the repo rate since May, appears to be nearing completion. So far, they have only raised it by 140 basis points. The next increase, scheduled this week, will bring the total for this cycle to 60 basis points.

Standard Chartered senior economist Anubhuti Sahay has stated that "the RBI should lower the rate of intervention sooner rather than later to allow INR to trade more in conformity with fundamentals."

If this statement is accurate, our foreign exchange reserves will be sufficient not just for the next six months, but for the next two to three as well.