The foreign exchange reserves continued their downward trajectory for the second consecutive month, with one week offering a brief reprieve during the past fortnight. The reserves fell by nearly 2 billion dollars to a six-month low of 652.87 billion dollars in the week ending December 13, as the Reserve Bank of India (RBI) persisted in selling dollars to defend the rupee, which has been on a losing streak since October and recently hit its lowest point, closing below 84.75.
According to the weekly statistical supplement released by the central bank on Friday, the forex reserves dropped by Rs 1.988 billion to Rs 652.869 billion for the week ending December 13. In the previous reporting week, the reserves had declined by Rs 3.235 billion to Rs 654.857 billion.
The reserves, which peaked at Rs 704.8 billion in the last week of September, have not recovered to that level since. They have been on a downward spiral for eight consecutive weeks until the third week of November, followed by a marginal recovery in the fourth week, only to resume their decline.
The persistent fall is attributed to the revaluation of foreign currency assets due to the rally in the dollar, alongside forex market interventions by the RBI aimed at reducing volatility in the rupee. Traders noted that state-run banks were active in the market on behalf of the RBI during Friday's trade.
Meanwhile, the rupee weakened to a record low of 85.10 during Friday morning trade, down 3 paise from the previous close. However, it closed flat, helped by likely early intervention by the central bank. "The market mayhem—both the indices bled more than 1.5 percentage points to close at their worst levels in two years—only added to the pain of the rupee," traders observed.
Changes in foreign currency assets, which form a major component of the reserves, are driven by the central bank's intervention in the forex market and the appreciation or depreciation of foreign assets held in the reserves. For the reporting week, foreign currency assets decreased by $3.047 billion to Rs 562.576 billion.
Expressed in dollar terms, these assets reflect the impact of appreciation or depreciation of non-US currencies such as the euro, pound, and yen held in the reserves.
Gold reserves, however, increased by Rs 1.121 billion to Rs 68.056 billion during the week. On the other hand, the Special Drawing Rights declined by Rs 35 million to Rs 17.997 billion, and the reserve position with the International Monetary Fund (IMF) fell by Rs 27 million to Rs 4.24 billion, according to the RBI data.