MUMBAI: After a near record surge of over $14 billion in the previous reporting week, foreign exchange reserves dipped by $6.7 billion to close the week to February 6 at $717.6 billion primarily due to a sharp plunge in the value of the gold holding, wiping off $14 billion from the reserves.
In the week to January 30, the reserves had climbed to a life-time high of $723.8 billion, strengthening the country’s external balances against the rising global economic challenges and giving an import cover of close to 12 months.
Forex reserves fell to $717.6 billion as if February 6, dropping by $6.71 billion, the weekly data from the Reserve Bank showed Friday.
In the previous week, the reserves had surged by over $14.12 billion primarily buoyed by the massive surge in gold prices which had hit a staggering $5,600/ounce on January 30 but since then plunged more than 30%.
Speaking last Friday, the governor Sanjay Malhotra had said the bank remained well placed to manage the external financing needs in the current global environment.
The fall in the reserves was primarily due to a dip in foreign currency assets, which are the largest component of the reserves, to the tune of $7.66 billion to $570.05 billion during the reporting week.
Foreign currency assets account not only for shifts in the dollar but also for changes in the valuation of other major currencies, including the euro, pound sterling and the Japanese yen, which form part of the reserve portfolio. As a result, movements in these currencies can influence the overall reserves position even in the absence of significant capital flows.
Meanwhile, the RBI said following the steep fall in the price of gold, the value of gold holdings, which is over 810 tonne, also recorded a sharp fall of $14.2 billion to $123.47 billion—wiping out completely the increase in the value in the previous week.
The special drawing rights also decreased by $132 million to $18.82 billion, while the country’s reserve position with the International Monetary Fund also edged down by $32 million to $4.71 billion.
Meanwhile, the rupee closed flat at 90.65 on Friday despite a bloodbath in the equities market. The local unit which was the worst currency in Asia last year losing close to 4.9%, has been strengthening since the interim Indo-US trade deal was announced and had made the biggest single-day gain of over 1.4% following the announcement.
But analysts are not seeing an end to the pain of the rupee. In a note, BMI, a research arm of Fitch Ratings said it sees the rupee falling gradually to 93 this year.
“The trade deal has allowed the rupee to appreciate to 90.4 after depreciating 5% against the dollar last year. We now expect the rupee to depreciate more slowly over 2026 and trade at around 93 by the year’s end, compared to our prior forecast of 95,” the report said.
Foreign direct investment outflows from profit repatriation and substitution towards expensive non-Russian crude as per the trade deal will drive this depreciation, it said, adding yield differentials moving in the favour of the rupee. But the relationship between these differentials and the value of the rupee has weakened in recent months which will limit the differentials’ impact on the exchange rate.