India’s foreign exchange reserves declined $4.9 billion to $780.8 billion in the week ended September 11, according to data released by the Reserve Bank of India (RBI) on Friday. This was the first decline in reserves after 10 consecutive weeks of increase.
The fall came a week after reserves posted their biggest-ever weekly increase of $44.9 billion, taking them to a record $785.7 billion, following strong foreign currency inflows under the RBI’s concessional swap window.
Foreign currency assets, the largest component of reserves, declined $2.4 billion to $645.8 billion during the week. Gold reserves fell $2.6 billion to $111.2 billion.
Special drawing rights (SDRs) with the International Monetary Fund (IMF) rose marginally by $39 million to $18.8 billion, while India’s reserve position with the IMF increased $60 million to $4.9 billion.
The latest decline follows the mobilisation of $136.4 billion in foreign currency inflows under the RBI’s special swap measures by August 31. The FCNR(B) deposit window closed on August 31, while external commercial borrowings and overseas foreign currency bonds remain eligible under the facility until December 31. Banks can avail themselves of the swap facility for deposits already contracted until September 11.
“The RBI bought $1.2 billion. I think the rest of the fall is a revaluation loss. If I look at the breakdown of forex reserves, there is a fall in gold. There would be a revaluation loss even in the foreign currency assets, likely due to dollar strength. That happened during that week, and the rise in US yields. Both could have contributed.
“Plus, the RBI has been selling dollars, and they have been doing sell-buy swaps. So that will show up as a reduction in the Forex reserve number. Additionally, the majority of the swaps were already done by September 4,” said Gaura Sen Gupta, chief economist, IDFC FIRST Bank.
India’s reserves had fallen to $666.9 billion in the week ended June 26 as the RBI sold dollars to contain volatility in the foreign exchange market amid the West Asia crisis. The central bank has since continued to intervene in the market, including through dollar-rupee sell/buy swaps.
The RBI has also used swaps to absorb excess rupee liquidity, which has the additional effect of raising forward premiums and supporting the currency.
