MUMBAI: From a macroeconomic perspective, the Ides of March has brought a bloodbath to the financial markets. Equities have logged their worst closing week since the pandemic-hit March 2020, the rupee has plunged to a lifetime low of 92.47, and the country’s foreign exchange reserves — the strongest external sector defence for the economy — have recorded their sharpest weekly fall in over a year as the Reserve Bank of India (RBI) stepped in heavily to defend the currency.
The reserves declined by $11.68 billion to $716.81 billion in the week ended March 6, down from a record high of $728.49 billion in the previous week, according to the latest weekly data released by the central bank on Friday.
In the preceding reporting week, the overall reserves had risen by $4.885 billion to an all-time high of $728.494 billion. India’s forex reserves had crossed the $700 billion mark for the first time in the week ended September 27, 2024.
The sharp $11.68 billion decline in reserves came amid heavy dollar sales by the RBI to support the rupee, which has been under pressure due to the escalating war involving Iran and the resulting surge in oil prices.
Earlier this week, there were reports that the central bank was preparing a $12 billion war chest to contain volatility in the foreign exchange market.
The rupee has been the weakest currency in Asia so far this year, losing more than 3.5% in 2026, following a 4.9% decline in 2025. The currency has weakened not only against the US dollar — which has rallied on safe-haven demand since the US and Israel launched a strike on Iran 13 days ago — but also against the euro, the pound, the yen and Gulf currencies. The dollar index was trading 0.49% higher at 101.3 earlier in the day.
In the broader equity market, benchmark indices fell around 2% each, marking the worst week for Dalal Street since March 2020. The Sensex has slipped below the 75,000 mark, while the Nifty is nearing the 23,000 level, and analysts warn that the sell-off may not be over yet as military tensions in the Middle East escalate and crude prices continue to surge.
Analysts said the rise in US Treasury yields and the strengthening dollar have further contributed to the decline in reserves.
Even at $716.81 billion, India remains the fourth-largest holder of foreign exchange reserves, after China ($3.57 trillion), Japan ($1.24 trillion) and Switzerland ($952.7 billion), while remaining ahead of Russia ($620.8 billion). At current levels, the reserves are sufficient to cover about eight months of imports.
Gaura Sen Gupta, economist at IDFC First Bank, estimated that the decline reflected net dollar sales of about $6.1 billion by the RBI, along with valuation losses of roughly $5.4 billion.
“The RBI sterilised the liquidity impact of the dollar sales through on-screen bond purchases,” she added.
Much of the decline came from foreign currency assets, the largest component of the reserves, which fell $9.8 billion to $563.245 billion. Meanwhile, the value of gold reserves — about 810 tonnes — declined by $1.6 billion, as bullion prices have softened since the war began.
Foreign currency assets, expressed in dollar terms, include the effects of appreciation or depreciation of other currencies such as the euro, the pound and the yen held in the reserves.
Foreign exchange reserves also include the country’s reserve tranche position with the International Monetary Fund (IMF), which declined by $45 million to $4.828 billion during the week.
Meanwhile, gold reserves fell by $1.612 billion to $130.017 billion, while Special Drawing Rights (SDRs) declined by $146 million to $18.720 billion.