MUMBAI: The nation’s forex reserves, which crossed the $700 billion mark to become the world’s fourth largest, have halted the seven-week gaining streak to come off by $3.71 billion in the reporting week ending October 4, after having risen by a total of nearly $35 billion in the previous seven weeks.
The fall can be attributed to the constant market intervention by the central bank to stem the rupee slide, which has been under tremendous pressure for months now.
Meanwhile, the rupee plunged to a record low of 84.06 on Friday—crossing the sensitive level of 84 for the first time. During the day the unit had a lower 84.07. Yet on a weekly basis, the rupee is down only 0.3 percent. Yet the week also marks the worst since May 2024 losing 0.3 percent on-week, as equity outflows surged and crude prices rose due to a worsening of the Middle Eastern conflict.
The RBI intervenes in the forex market to manage liquidity and prevent excessive rupee volatility either towards depreciation or appreciation, ensuring orderly market conditions without aiming for specific exchange rate targets. The monetary authority has no official level for the currency.
According to the weekly statistical supplement released by the Reserve Bank of India on Friday, the nation’s foreign exchange reserves fell for the first time in eight weeks and came off a record high to stand at $701.18 billion in the week to October 4.
The central bank data, the foreign exchange reserves had scaled $704.89 billion in the previous week, thus becoming the world’s fourth largest after China, Japan and Switzerland. The reserves had hit a record high in the week to September 27, rallying by $12.6 billion, making the biggest weekly increase since mid-July 2023.
The reserves were at $625.63 billion when the current fiscal year began.
According to the RBI data, foreign currency assets (FCAs), which are biggest component of the reserves, dipped by $3.51 billion to $612.6 billion.
Expressed in dollar terms, the FCAs include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
Gold reserves decreased by $40 million to $65.76 billion. Special drawing rights (SDRs) also saw a marginal dip of $123 million to stand at $18.43 billion. Reserve position in the IMF contracted by $35 million to $4.35 billion.
The RBI regularly intervenes in the forex market through liquidity management, including through the selling of dollars, with a view to preventing a steep depreciation in the rupee.
It also closely monitors the forex markets and intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate, without reference to any pre-determined target level or band.