India’s forex reserves fall for fifth straight week to $726 billion: RBI | Finance News
India’s foreign exchange reserves fell for the fifth consecutive week to reach $726 billion as of October 9, as the Reserve Bank of India (RBI) continued to intervene in the currency market to curb volatility.
With an $8.6 billion decline during the week, foreign exchange reserves are down $59.7 billion in five weeks, after touching a record high of $785.71 billion on September 4 on the back of a concessional swap window opened in June to attract foreign inflows.
The drawdown comes amid sustained pressure on the rupee from elevated crude oil prices, foreign portfolio outflows and demand for dollars. The RBI has been selling dollars to contain volatility in the currency market.
“The RBI sold around $9.8 billion, and there was a small revaluation gain during the week,” said Gaura Sengupta, chief economist at IDFC First Bank.
She said pressure on reserves would persist as India’s balance of payments was expected to remain in deficit, with demand for dollars to pay for oil imports continuing to drain the country’s foreign exchange reserves.
Foreign currency assets (FCAs), the largest component of the reserves, declined by $7.14 billion to $597.61 billion during the week ended October 9. Gold reserves fell by $1.32 billion to $105.09 billion.
Special Drawing Rights declined by $109 million to $18.55 billion, while India’s reserve position with the International Monetary Fund fell by $10 million to $4.78 billion.
The RBI’s recent measures, including a dedicated dollar window for state-owned oil marketing companies and tighter rules for foreign exchange derivatives, have helped ease pressure on the spot market. However, these steps are not expected to eliminate the underlying demand for dollars.
The rupee continued its strengthening streak on Friday to settle at 94.96 per dollar on Friday, highest since September 8, against the previous close of 95.06 per dollar. 1.9 per cent gain this week marked rupee’s strongest weekly performance in four years.
The measures announced by the RBI on October 10 were aimed at curbing speculative positions against the rupee and diverting oil companies’ dollar demand away from the spot market. The central bank also introduced a foreign exchange risk reserve requirement for certain derivative transactions.
“The RBI sold dollars heavily during the current week also. The rupee will continue to trade at these levels until the crude and dollar come down substantially,” said the treasury head at a private bank.
