India may face a shortfall of about 4% of its foreign exchange reserves when the government issues new currency, according to the country’s foreign currency experts.
While the government has promised that the exchange rate will remain fixed, the latest forecast from the country, which has been the benchmark for the global market, suggests a decline of between 3% and 4% from what the central bank had predicted earlier.
The government said it was committed to providing liquidity to the market and was planning to issue new currency.
The central bank, however, has indicated that it may issue a higher-denomination rupee, in addition to the two that are currently being issued, in an effort to stimulate growth.
While a sharp fall in the rupee will hit the economy, it will also impact other financial markets in the world, including those in emerging markets like India.
The rupee fell from an exchange rate of about 2.5% on June 25 to about 2% today.
The Reserve Bank of India is now forecasting a contraction of 3% in 2019.