The Reserve Bank of India (RBI) reported on Friday that India’s foreign exchange reserves fell by $6.78 billion to $675.65 billion for the week ending November 8. Following its peak of $704.89 billion at the end of September, the foreign exchange basket has declined for several weeks. Over the last six weeks, their total decline has been $29.5 billion.
Forex traders have ascribed the decline in foreign currency holdings to the central bank’s probable involvement in the foreign exchange market to curb the rupee’s depreciation. The RBI made market interventions during that time on both the purchasing and selling sides. The rupee has consistently fallen to new record lows during the past six weeks. The rupee hit 84.39 versus the US dollar on November 8.
In addition to an increase in US Treasury yields, the dollar index has been lingering at a four-month high since Donald Trump’s victory in the recently ended US presidential election. The two causes together have kept the rupee under pressure, and this pressure is expected to continue until the markets have a better understanding of the policies that the Trump administration will implement. Another layer of pressure was added by ongoing withdrawals from the local equity market.
Foreign currency assets, a significant part of the reserves, fell $4.467 billion to $585.38 billion for the week ending November 8, according to data released Friday. When expressed in US dollars, foreign currency assets include the impact of the growth or decline of non-US currencies held in foreign exchange reserves, such as the euro, pound, and yen.
Traders claimed that the rupee would have declined considerably more quickly had the central bank not intervened.
