India’s forex reserves fell $2.39 billion to a three-month low of $560.003 billion in the week to March 10, central bank data showed.
In the week to March 3, the reserves rose by $1.46 billion and stood at $562.40 billion. On an annualised basis, the reserves are down by $47.31 billion. On a fiscal year basis, it’s $62.23 billion lower.
With this erosion, the forex kitty is at the lowest since early December.
The loss in the reserves is due to the revaluation of the foreign currency assets, which are the largest component of the forex kitty, to the tune of $2.2 billion to $494.86 billion for the week to March 10.
On a year-on-year basis, the value of foreign currency assets fell by $45.86 billion and from a fiscal year perspective, they lost $59.49 billion.
Expressed in dollar terms, foreign currency assets include the effect of appreciation or depreciation of the non-US units like the euro, the pound and the yen held in the foreign exchange reserves.
The reserve losses are primarily due to the Reserve Bank of India selling dollars to stem the rupee volatility in the spot and forwards market to prevent runaway moves in the exchange rate.
Last week, the rupee stood ground and lost just 10 basis points against the dollar and the currency traded in the 81.61-82.29 range. The rupee ended at 82.55 on Friday.
The country’s gold reserves and SDR holdings too saw a reduction in the week under review with both reserves falling $110 million and $53 million, respectively. The gold reserves and SDR holdings stand at $41.92 billion and $18.12 billion, respectively. The country’s reserve position in the IMF also fell by $11 million, taking it to $5.1 billion.
The reserves have been falling from the peak as the rupee has been under pressure and the monetary authority has been taking measures to defend the rupee from extreme volatility. In 2022, the cost of defending a falling rupee was over $115 billion of the reserves.
The worst drop was in the week to Feb. 10 when the reserves plunged by a steep $8.32 billion to $566.95 billion. In October 2021, the forex kitty had reached an all-time high of $645 billion.