A strengthening dollar, coupled with continued outflow of foreign funds and interventions by the country's central bank to stabalise the rupee drained over $2 billion from India's foreign exchange (forex) reserves, official data showed on Friday.
Overall the forex declined by $2.04 billion to $349.97 billion in the week ended September 25.
"In the week under review, the dollar had strengthened against the major non-dollar currencies especially the Euro and the Pound by over 1 percent. This has translated into the plunge in foreign reserves," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.
The Indian reserves consist of nearly 20-25 percent of non-dollar currencies. The individual movements of these currencies against the dollar impacts the overall reserve value.
According to Banerjee, the intervention by the Reserve Bank of India (RBI) to stablise the rupee also receded the foreign reserves.
"RBI is very active in defending the rupee and breaking any downward trend in rupee value. It is this defence that has kept the rupee, as one of the best performing currency so far in the year," Banerjee said.
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The RBI is known to enter the sport markets to either sell or buy dollars to keep the rupee in a stable orbit.
Other major factor for the decline in reserves was the outflow of foreign funds from the Indian equity and debt markets.
The data with the National Securities Depository Limited (NSDL), showed that the foreign portfolio investors (FPIs) off-loaded Rs.1,251.03 crore or $190.39 million in equity and debt markets from September 21-24.
The reserves had previously risen by $631.5 million to $352.02 billion in the week ended September 18.
Before that the reserves had augmented by $2.35 billion to $351.38 billion in the week ended September 11.
However, the reserves had also declined by $2.88 billion in the week ended September 4 to $349.03 billion.
The data furnished by the Reserve Bank of India (RBI) in its weekly statistical supplement showed that the foreign currency assets (FCAs) had plunged by $1.98 billion to $326.57 billion in the week under review.
The FCA constitutes the largest component of India's forex reserves. It consists of US dollars, major non-dollar currencies, securities and bonds bought abroad.
"The FCA expressed in US dollar terms includes the effect of appreciation or depreciation of non-US currencies such as the pound sterling, euro and yen held in reserve," the RBI said in its statistical supplement.
During the week under review, the country's gold reserves remained stagnant. The country's gold reserves had depleted by $214.8 million to $18.03 billion during the week ended September 4.
The special drawing rights (SDRs) in the week under review were lower by $48.3 million at $4.04 billion.
The country's reserve position with the International Monetary Fund (IMF) also edged down by $11.8 million to $1.31 billion.