India’s foreign exchange reserves at 11-week low, down for third week

The Reserve Bank of India’s (RBI’s) foreign exchange reserves declined by $5.7 billion to an 11-week low of $561.27 billion in the week ended February 17, latest central bank data showed.

The fall in the reserves for the third straight week was mainly on account of a drop in the RBI’s foreign currency assets, which declined $4.5 billion to $496.07 billion in the previous week.

The RBI’s gold reserves also declined last week, dropping $1 billion to $41.82 billion, the data showed.

In the week gone by, the rupee depreciated 0.4 per cent against the US dollar, settling at 82.83 per US dollar on February 17.

Analysts said a part of the decline in the reserves last week could be attributed to likely dollar sales by the central bank in order to prevent excess volatility in the rupee.

“The decline in non-dollar assets and the central bank’s intervention to match the dollar demand pushed the forex reserves lower for another week. Some corporate dollar outflows for debt repayment were seen during that week,” HDFC Securities research analyst Dilip Parmar said.

Following sharp increases in November and December, the RBI’s reserves have been declining for the past few weeks, largely in line with renewed concerns over rate hikes by the Federal Reserve and a resultant rise in the US dollar globally.

Reserves worth $576.8 billion as on January 27 cover 9.4 months of projected imports for the current fiscal year, the RBI staff said in the central bank’s February Bulletin.

From June to October of 2022, the RBI was a net seller of US dollars in the currency market as the central bank sought to rein in excessive volatility in the rupee’s exchange rate amid the Ukraine war and aggressive rate hikes by the Federal Reserve. The foreign exchange reserves increased by $28.9 billion since September-end to $561.6 billion as on January 6.