India’s forex reserves drop for fourth week, down $12.95 bn to $734.6 bn | Economy & Policy News

India’s foreign exchange reserves fell for the fourth straight week as the central bank firefights to protect the domestic currency by selling dollars amid surging crude oil prices.

 

Foreign exchange reserves declined by $12.95 billion to reach $734.6 billion during the week ended October 2, latest data by the Reserve Bank of India (RBI).

 

The total reserves declined about $51.1 billion in total after hitting record $785.7 billion in the week ended September 4.

 

However, India’s foreign exchange reserves continue to remain adequate in terms of the standard metrics of reserve adequacy with import cover of around 11 months and external debt cover of 94.4 per cent, RBI governor Sanjay Malhotra said while announcing the monetary policy earlier this week.

  

Experts estimated that the RBI may have net sold around $30 billion in dollars during the month, while the remaining $21 billion of the decline likely reflected revaluation losses.

 

The reserves stood at $747.6 billion in the previous week ended September 25, when they had fallen $18.3 billion, the biggest weekly decline on record. 

 

Foreign currency assets (FCAs), the largest component of the reserves, declined by $10.7 billion to $604.7 billion during the reported week. FCAs, expressed in dollar terms, include the effect of appreciation or depreciation of non-US currencies such as the euro, pound and yen held in the reserves.

 

“The RBI sold around $7.5 billion during the week, the rest was revaluation loss,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. “The gold reserve fall was also because of revaluation loss,” she added.

 

The latest decline follows a sharp recovery in reserves after they had fallen to $666.9 billion in the week ended June 26, as the RBI sold dollars amid the West Asia crisis.

 

Gold reserves declined by $2.3 billion to $106.4 billion during the reported week, while special drawing rights (SDRs) rose by $15 million to $18.7 billion. India’s reserve position with the International Monetary Fund (IMF) fell by $15 million to $4.8 billion, the RBI data showed.

 

Gold prices fell by 2.5 per cent during the reported week, to $4177/Oz. The dollar index rose by 1.12 per cent to 102.10 during the same period.

 

The FCNR(B) concessional swap window came into effect in June mobilised $143.6 billion in foreign currency inflows until September 18, contributed significantly to the rise in reserves.

 

However, with the rise in the crude oil prices, the RBI has been intervening in the foreign exchange market through spot and forward transactions to contain excessive volatility in the rupee. The central bank has also used dollar-rupee sell/buy swaps as part of its intervention strategy, which helped replenish reserves earlier while absorbing excess rupee liquidity from the banking system.

 

“The crude was above $100 per barrel, and the outflows are continuing, which has put pressure on rupee, hence RBI is intervening to keep rupee from touching 97 per dollar,” said a dealer at a state-owned bank.