Mumbai: India’s foreign exchange reserves fell for the fifth straight week to a 10-month low of $634.59 billion as of January 3, data from the Reserve Bank of India (RBI) showed on Friday.
Reserves decreased by $5.7 billion in the aforementioned week, after declining by a cumulative amount of $17.8 billion in the previous three weeks. Reserves have fallen by about $70 billion from an all-time high of $704.89 billion in late September.
The rupee has faced persistent headwinds in recent weeks, with the dollar strengthening and capital inflows slowing in the wake of slowing economic growth in India.
The central bank routinely intervenes in the foreign exchange market through state-run banks to limit rupee losses.
Analysts at Nomura Bank said the scale of the Reserve Bank of India’s foreign exchange intervention since October had been “significant” and had led to “adverse effects”, such as tightening banking system liquidity and rising short-term interest rates at a time of weak growth.
This in turn leads to more capital outflows and possibly “dollar hoarding” in anticipation of further depreciation of the rupee, Nomura said.
Changes in foreign currency assets result from central bank intervention in the forex market as well as an increase or decrease in the value of foreign assets held in reserves.
The Reserve Bank of India intervenes on both sides of the Forex market to curb unnecessary fluctuations in the rupee.
The rupee settled at 85.9650 to the dollar on Friday after hitting a record low of 85.97 earlier in the session. The local unit fell 0.2% this week, which is the tenth weekly decline in a row.
Foreign exchange reserves also include India’s reserve tranche status in the International Monetary Fund.