India's foreign exchange reserves declined by $12.95 billion to $734.61 billion during the week ended October 2, marking the fourth consecutive weekly fall, as foreign currency assets and gold holdings registered substantial reductions amid continued pressure on the rupee, according to data released by the Reserve Bank of India (RBI) on Friday.
The latest decline followed an even sharper contraction of $18.34 billion in the preceding week ended September 25, when the country's foreign exchange reserves stood at $747.56 billion. The consecutive reductions have brought the reserves significantly below their record high of $785.71 billion recorded during the week ended September 4.
The overall reserves have consequently fallen by approximately $51.10 billion from their September peak, reflecting the combined impact of changes in foreign currency assets, valuation movements and the central bank's efforts to manage volatility in the foreign exchange market.
Foreign currency assets decline
According to the RBI's weekly statistical data, foreign currency assets, which constitute the largest component of India's foreign exchange reserves, decreased by $10.66 billion to $604.75 billion during the reporting week.
Foreign currency assets are expressed in US dollar terms and include the impact of appreciation or depreciation of non-dollar currencies, including the euro, pound sterling and Japanese yen, held in the country's reserve portfolio.
Consequently, fluctuations in the value of these currencies against the dollar can influence the reported value of reserves even without corresponding transactions involving the underlying assets.
The value of India's gold reserves also declined by $2.29 billion to $106.41 billion during the week, contributing significantly to the overall reduction.
Meanwhile, Special Drawing Rights (SDRs), an international reserve asset created by the International Monetary Fund (IMF), increased marginally by $15 million to $18.66 billion.
India's reserve position with the IMF declined by $15 million to $4.79 billion during the reporting period.
Sharp fall from September peak
The latest contraction follows an extraordinary increase in India's foreign exchange reserves during August and early September, supported by substantial foreign currency inflows under a special concessional swap arrangement introduced by the RBI.
The central bank had opened a special window for Foreign Currency Non-Resident (Bank), or FCNR(B), deposits in June, enabling banks to mobilise foreign currency deposits from non-resident Indians and exchange the proceeds for rupees through the RBI.
The initiative attracted record inflows, with banks raising approximately $132.98 billion through the arrangement. The substantial mobilisation of foreign currency helped lift India's reserves to their all-time high in early September.
However, the subsequent decline has coincided with the closure of the special window and continued demand for dollars in the domestic foreign exchange market.
The RBI has also been intervening in currency markets through spot dollar sales and foreign exchange swap transactions to moderate excessive volatility in the rupee.
Such interventions can reduce reported foreign exchange reserves, although the precise contribution of intervention, valuation changes and other transactions cannot be determined solely from the weekly reserve figures.
Rupee remains under pressure
The decline in reserves comes at a time when the Indian rupee has remained under considerable pressure against the US dollar, reflecting persistent foreign portfolio outflows, elevated global energy prices and uncertainty in international financial markets.
On Friday, the rupee closed at approximately 96.73 against the dollar, remaining close to its record low of 96.96 reached earlier this year. The domestic currency recorded a weekly decline despite the RBI's recent increase in its benchmark policy rate.
Market participants have attributed the currency's weakness partly to sustained demand for dollars from importers seeking to hedge their foreign exchange exposure, alongside withdrawals by foreign portfolio investors from Indian equities.
Higher crude oil prices have also increased India's vulnerability to imported inflation and additional demand for foreign currency, given the country's substantial dependence on overseas energy supplies.
The RBI has maintained that its foreign exchange interventions are intended to curb excessive volatility rather than defend any particular exchange rate level.
Despite the recent drawdown, India's foreign exchange reserves remain substantial, providing the central bank with resources to manage external shocks, meet international payment obligations and respond to disruptions in global capital flows.
The pace of future changes in reserves will depend on developments in the rupee, international commodity prices, foreign investment flows, currency valuations and the RBI's interventions in the foreign exchange market.