MUMBAI: The Indian rupee has faced significant pressure recently, dropping to a low of 87.80 against the US dollar last week, due to ongoing tariff-related tensions. To support the rupee, the Reserve Bank of India (RBI) has been selling dollars in the market, which has led to a sharp fall in the country’s foreign exchange reserves.
According to the RBI’s weekly report, the forex reserves dropped by $9.32 billion to $688.87 billion in the week ending August 1. This was one of the largest weekly falls in recent times. In the previous week, the reserves had actually increased by $2.7 billion to $698.19 billion. The forex reserves had reached a peak of $704.8 billion in the week ending September 27, 2024, but have been declining since then until March, when the rupee started to stabilise.
The rupee, which has been under pressure for most of July and early August, managed to end the day slightly higher on Friday despite early losses. It closed 4 paise up at 87.66 against the dollar, after opening higher by 15 paise. Market experts said this was likely due to intervention by the RBI as the US increased trade pressure on India. So far this year, the rupee has fallen by 2.39%, and it has lost 2.4% in the current fiscal year.
The fall in forex reserves was mainly due to a drop in foreign currency assets, which form the largest part of the reserves. These assets fell by $7.31 billion to $581.61 billion during the week. These foreign currency assets include major global currencies like the euro, pound, and yen, and their value is affected by changes in these currencies against the US dollar.
Gold holdings also decreased by $1.7 billion to $83.99 billion, while special drawing rights dropped by $237 million to $18.57 billion. The country’s reserve position with the International Monetary Fund (IMF) fell by $120 million to $4.69 billion, according to RBI data.
It is important to note that while the RBI does not have an official target level for the rupee, it closely monitors the foreign exchange market and steps in when needed to maintain orderly trading and reduce excessive volatility in the rupee’s value.