India’s forex reserves see biggest weekly fall in over 11 months; drop to $566.94 billion

India’s foreign exchange reserves declined by $8.31 billion in the week ended on February 10. The country's forex reserve stood at $566.94 billion, per the latest data released by the Reserve Bank of India. The dip of 8.3% in the forex reserve seen last week is the sharpest decline seen in the past 11 months.

A likely reason for this decline is the selling of dollars by the central bank in order to support the weakening Indian rupee against the greenback.

As of February 3, India’s foreign exchange reserves fell by $1.49 billion to $575.27 billion in the previous week.

What does the data say?

According to the Weekly Statistical Supplement report published by the Reserve Bank of India (RBI), India’s foreign currency assets declined by $7.108 billion to $500.587 billion. Foreign currency assets are a major component of the forex reserve of the country.

Foreign currency assets are expressed in dollar terms and consider the effects of the appreciation and depreciation of non-US currencies like the euro, pound, yen etc. which are held in the country’s foreign reserve.

The gold reserves of the country saw a decrease as well. Continuing the fall into the second week, gold reserves have reduced to $44.862 billion, down by $919 million.

Declines were also seen in the Special Drawing Rights (SDRs) and the reserve position with the International Monetary Fund (IMF). The SDRs were down by $190 million to $18.354 billion while the reserve position with the IMF was down by $102 million to $5.145 billion.

The country’s forex reserves touched an all-time high of $645 billion in the month of October 2021. The forex reserves have been declining amid the central bank’s efforts to defend the depreciating rupee amid the global macroeconomic outlook.

Along with the decline in forex reserves, the rupee continued its weakness against the US dollar. The local currency fell by 0.4% and finished at 82.83 per dollar at the end of last week. Amid concerns over rising US bond yields, the rupee continued its decline for the fourth week. However, likely intervention by the RBI in the non-deliverable forward (NDF) market may have supported the rupee at lower levels.

Meanwhile, RBI Governor Shaktikanta Das believes that the size of India’s forex reserves is comfortable. He recently said that India’s external debt ratios were low by international standards which had enabled the central bank to eschew measures to control capital flows and take steps to further internationalise the domestic currency, even during episodes of significant capital outflows.