India's foreign exchange reserves will continue to fall.

A Reuters poll says that India's foreign exchange reserves will be at their lowest level in more than two years by the end of 2022. This is because the Reserve Bank of India is still trying to protect the rupee from the strengthening dollar.

From a high of $642 billion a year ago, the RBI has cut its foreign exchange reserves by almost $100 billion, bringing them down to $545 billion. More cuts are on the way, but so far they haven't stopped the rupee from falling to an all-time low against the dollar.

A poll of 16 economists done by Reuters on September 26 and 27 showed that the median prediction was for these reserves to drop by another $23 billion, to $523 billion, by the end of this year. If that were true, it would be the lowest level in more than two years.

Predictions ranged from $500 million to $5.4 trillion.

That means that the RBI will keep using up its foreign exchange reserves at a rate not seen since the global financial crisis of 2008, when they dropped by nearly 20%.

Compared to the "taper-tantrum" phase in 2013, when the US Federal Reserve suddenly cut back on buying government bonds, it has already burned through its reserves much more quickly.

A decade later, India is in a similar circumstance. So far this year, the rupee has lost almost 10% of its value against the dollar. On Wednesday, it hit a record low of 81.95 per dollar, even though dollar sales are still going on and more are expected.

Sakshi Gupta, the chief economist at HDFC Bank, said, "With the last rise in the rupee, I expect the RBI to continue to step in, maybe not to try to keep the currency at a certain level, but to try to decrease volatility."

As pressure on the rupee and the current account deficit grows, "we would see even more interventions in the days to come, which would drain the FX reserves even more by the end of this year."

A small number of economists in the survey warned that the widening current account deficit, which was expected to end the fiscal year at its highest level in a decade, could cause the overall forex reserves to drop more than they expected over the next year.

One thing that led to the drawdown is that the RBI did not raise interest rates as quickly as the US Federal Reserve.

According to a separate Reuters poll, the Fed is now expected to raise rates by another 150 basis points over the next few months, bringing them from near zero in March to 3.00–3.25%.

The RBI just started raising interest rates in May and has only raised the repo rate by 140 basis points, so it looks like they are almost done. It is expected to go up by only 60 basis points more during this cycle, with 50 due this week.

Anubhuti Sahay, a senior economist at Standard Chartered, says that the RBI should lower the rate of intervention as soon as possible to let the INR trade more in line with its fundamentals.

This statement says that our foreign exchange reserves should be enough not just for the next six months but also for the next two to three years.