India's foreign exchange reserves fell by $18.34 billion to $757.46 billion in the week ended September 25, one of the steepest weekly declines in recent years, as the Reserve Bank of India stepped up its intervention to shield the rupee, central bank data released on Friday showed. The slide followed a $14.88 billion fall in the previous reporting week, when reserves stood at $765.90 billion. Two consecutive weeks of sharp declines have taken the buffer well below its recent highs even as the central bank mounts one of its most aggressive currency defences.
Foreign currency assets lead the fall
The latest drop was driven largely by foreign currency assets, the biggest component of the reserves, which fell by $15.57 billion to $615.41 billion during the week. Gaura Sengupta, chief economist at IDFC First Bank, said the RBI sold a net $11.8 billion in September, with the rest of the decline explained by revaluation losses across gold and foreign currency assets. Cumulatively, the central bank sold a net $22.4 billion between September 11 and 25, after the dollar swap window closed, Moneycontrol reported. Gold reserves declined by $2.59 billion to $108.70 billion during the week, while Special Drawing Rights eased by $97 million to $18.64 billion and India's reserve position with the IMF fell by $86 million to $4.80 billion.
Record short-dollar position
The intensity of the defence is visible in the RBI's forward book: its net short dollar position stood at a record $200.06 billion at the end of August, up from $136.77 billion at the end of July, according to the latest central bank data. The rupee has remained under pressure from elevated crude oil prices and high US Treasury yields, prompting the RBI to use a mix of spot dollar sales and foreign exchange swaps to contain volatility. The currency had breached the 96-per-dollar mark in September as those pressures built.
What it means
The drawdown underscores the scale of the central bank's effort to prevent disorderly rupee moves as global financial conditions tighten. With Brent crude holding above $100 a barrel and the RBI's October 5-7 policy meeting days away, markets will be watching whether the defence of the currency complicates the case for a rate hike at a moment when inflation risks are also rising.
Sources: Moneycontrol – India's forex reserves fall $18.34 billion to $757.46 billion in week ended September 25
Foreign currency assets lead the fall
The latest drop was driven largely by foreign currency assets, the biggest component of the reserves, which fell by $15.57 billion to $615.41 billion during the week. Gaura Sengupta, chief economist at IDFC First Bank, said the RBI sold a net $11.8 billion in September, with the rest of the decline explained by revaluation losses across gold and foreign currency assets. Cumulatively, the central bank sold a net $22.4 billion between September 11 and 25, after the dollar swap window closed, Moneycontrol reported. Gold reserves declined by $2.59 billion to $108.70 billion during the week, while Special Drawing Rights eased by $97 million to $18.64 billion and India's reserve position with the IMF fell by $86 million to $4.80 billion.
Record short-dollar position
The intensity of the defence is visible in the RBI's forward book: its net short dollar position stood at a record $200.06 billion at the end of August, up from $136.77 billion at the end of July, according to the latest central bank data. The rupee has remained under pressure from elevated crude oil prices and high US Treasury yields, prompting the RBI to use a mix of spot dollar sales and foreign exchange swaps to contain volatility. The currency had breached the 96-per-dollar mark in September as those pressures built.
What it means
The drawdown underscores the scale of the central bank's effort to prevent disorderly rupee moves as global financial conditions tighten. With Brent crude holding above $100 a barrel and the RBI's October 5-7 policy meeting days away, markets will be watching whether the defence of the currency complicates the case for a rate hike at a moment when inflation risks are also rising.
Sources: Moneycontrol – India's forex reserves fall $18.34 billion to $757.46 billion in week ended September 25
