Forex reserves log sharpest weekly drop; fall $17.76 bn to hit 4-month low

The previous highest weekly fall in foreign exchange reserves was $15.5 billion, recorded for the week ended October 24, 2008, during the global financial crisis

India’s foreign exchange (forex) reserves declined $17.76 billion, the sharpest weekly fall, to hit a four-month low of $657.8 billion for the week ended November 15, according to the latest data released by the Reserve Bank of India (RBI) on Friday.

 

The fall was attributed to the strengthening of the US dollar and the central bank’s dollar sales to limit volatility in the foreign exchange market.

 

“The RBI has been selling dollars to protect the rupee for the past three months. Apart from this, our imports have been constantly increasing, as seen from the import figures of August and October. So, dollar buying has been more than selling as exporters have also not been covering their receivables,” said Anil Kumar Bhansali, head of treasury, Finrex Treasury Advisors.

 

 

The previous highest weekly fall in forex exchange reserves was $15.5 billion, recorded for the week ended October 24, 2008, during the global financial crisis.

 

Forex reserves fell for the seventh straight week after touching a record high on September 27, when they reached $705 billion.

 

“The substantial strengthening of the US dollar has led to a depreciation in other foreign currencies and gold, in which we hold reserves, resulting in a sharp decline in overall reserves,” said Gopal Tripathi, president and head, treasury and capital markets, Jana Small Finance Bank.

 

“The dollar index, which was previously around 103-104, has now risen to 107.5, exacerbating this negative impact on our reserves,” Tripathi said, adding that the RBI had been selling dollars to minimise volatility in the rupee, which has further contributed to the fall in reserves.

 

The rupee fell by 0.04 per cent against the dollar in the week ended November 15, from the previous week. It has depreciated 0.46 per cent against the dollar so far this month. The Indian unit has been under pressure since the start of the rate cut cycle by the US Federal Reserve in September. 

 

With Donald Trump winning the US presidential election, foreign investors are pulling out, exerting pressure on emerging market currencies. The rupee fared much better against the dollar during this period compared to most Asian currencies.

 

The dollar has strengthened post the US election. Further, the weakening of the euro and the GBP has bolstered the dollar during the week. The euro and sterling witnessed a steep fall against the dollar after the PMI data showed a sharp decline in eurozone business activity in November.

 

“The forex reserves underwent a sharp decline during the review period, primarily due to three key factors: significant FII outflows from equity and debt, a decrease in gold prices (which are dollar-denominated), and the weakening of major currencies, including the euro and GBP, against the US dollar, as the reserves are valued in USD terms,” said VRC Reddy, head of treasury, Karur Vysya Bank.

 

“The sharp fall in forex reserves is on account of revaluation and RBI selling dollars to protect the rupee from excessive volatility. Additionally, the fall in gold prices has affected the reserves as we store a substantial proportion of our reserves in yellow metal,” said Madan Sabnavis, chief economist, Bank of Baroda.

 

International spot gold prices dropped 4.5 per cent to $2,563.3 per ounce on November 15, 2024, from $2,684.8 on November 8, 2024.