India's foreign exchange reserves recorded their most significant weekly drop in two years, decreasing by $4.92 billion to $780.78 billion for the week ending September 11. This decline follows a record surge to $785.71 billion in the first week of September. The Reserve Bank of India (RBI) reportedly intervened to curb the rupee's depreciation, which has been under pressure from elevated oil prices and a stronger US dollar.
The fall in reserves was primarily driven by a $2.37 billion reduction in foreign currency assets and a $2.59 billion decrease in gold reserves. Despite this weekly decline, the overall forex kitty remains substantial, standing $77.82 billion higher year-on-year and $89.67 billion above its level at the end of March. Special Drawing Rights (SDRs) increased slightly by $39 million, while the reserve position with the International Monetary Fund (IMF) remained largely unchanged.
Analysts noted that the rupee, while experiencing pressure, managed to strengthen marginally by about 0.11% against the dollar between September 15 and September 22, closing at 95.8125 per dollar on Friday, September 25. This resilience is attributed to RBI interventions, including sell-buy swaps and open-market operations to manage rupee liquidity. The one-year forward yield on the rupee climbed to 3.50%, its highest since May, reflecting these market dynamics. However, India's benchmark stock index has posted its longest weekly losing streak in six years, with foreign funds selling Indian shares in September.
The central bank's actions highlight its commitment to maintaining rupee stability, even as global factors like rising energy prices—with Brent crude exceeding $100 per barrel and reaching $130.80 per barrel on September 15—and a strengthening dollar continue to pose challenges. The substantial reserve buffer, despite the recent decline, is seen as a strong protective measure against external shocks.
