India’s foreign exchange reserves recorded their steepest weekly decline in nearly two years, falling by $14.9 billion to $765.9 billion in the week ended
September 18, according to the latest data released by the Reserve Bank of India (RBI). The drop comes just weeks after the country’s reserves climbed to a record level, highlighting the impact of foreign exchange market movements, currency intervention and valuation changes on the overall reserve position. The previous week, which ended September 11, saw India’s forex reserves at $780.8 billion. The latest fall marks the sharpest weekly decline since November 15, 2024. Foreign currency assets (FCAs), which account for the largest share of India’s forex reserves, registered a substantial fall during the week under review. FCAs declined by $14.8 billion to $631 billion. The movement in FCAs is influenced not only by actual foreign exchange transactions but also by changes in the value of major currencies held in India’s reserves. These assets are reported in US dollar terms, meaning movements in currencies such as the euro, pound and yen can affect their dollar value. Gaura Sen Gupta, chief economist at IDFC FIRST Bank, attributed the decline to both intervention and valuation effects. “There was an actual dollar sale of $10.9 billion, and the rest of the fall was because of revaluation loss,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. Gold Reserves Rise Despite Overall Drop While the overall reserve kitty contracted sharply, India’s gold reserves moved in the opposite direction. The RBI data showed that gold reserves increased by $68 million during the week to $111.3 billion. Special drawing rights (SDRs), however, declined by $106 million to $18.7 billion. India’s reserve position with the International Monetary Fund also weakened, falling by $27 million to $4.9 billion. The contrasting movements across different components underline that the weekly change in total reserves was largely driven by the fall in foreign currency assets. Rupee Pressure, Crude Prices And RBI Intervention The latest decline in reserves comes against a backdrop of pressure on the Indian rupee. Higher crude oil prices and elevated US Treasury yields have added to the challenges facing the currency market. The RBI has been using foreign exchange market interventions, including spot and forward transactions, to manage excessive volatility in the rupee. A dealer at a state-owned bank pointed to the movement in crude prices and US yields as key factors behind the central bank’s intervention. “The RBI has been intervening in the rupee market because crude has now moved beyond $105 per barrel, and US yield beyond 5 per cent,” said a dealer at a state-owned bank. The central bank has also used dollar-rupee sell/buy swaps as part of its liquidity and foreign exchange management operations. Such transactions had earlier helped bolster reserves while simultaneously absorbing surplus rupee liquidity from the banking system. Reserves Had Hit Record High Earlier This Month The latest decline follows a period of strong accumulation in India’s foreign exchange reserves. Reserves had reached a record $785.7 billion in the week ended September 5, supported by foreign currency inflows generated through the RBI’s FCNR(B) deposit swap scheme. The concessional swap window has been an important contributor to the rise in reserves in recent months. According to the latest information, it had mobilised $143.6 billion in foreign currency inflows through September 18. The reserve position has therefore changed considerably since late June. India’s forex reserves had fallen to $666.9 billion in the week ended June 26, when the RBI stepped up dollar sales amid heightened market pressure linked to the West Asia crisis.
