India's Foreign Exchange Reserves Decline After Record High

MUMBAI: In a significant development for the Indian economy, the country’s foreign exchange reserves have experienced a decline for the first time in eight weeks. As of October 4, the reserves stood at $701.18 billion, according to data released by the Reserve Bank of India (RBI). This marks a decrease of $3.71 billion during the reporting week, following a remarkable increase of nearly $35 billion over the previous seven weeks.

The peak of these reserves was recorded at $704.89 billion, which was achieved after a substantial rise of $12.6 billion in the week ending September 27. This increase was the largest weekly gain since mid-July 2023. The fluctuations in foreign currency assets are primarily influenced by the RBI's interventions in the foreign exchange market, as well as the changes in the value of foreign assets held in the reserves.

The RBI plays a crucial role in stabilizing the Indian rupee by intervening in the forex market to prevent excessive volatility. This intervention is particularly important during times of economic uncertainty. In the recent period, the rupee faced its worst week since May, depreciating by 0.3% week-on-week. This decline was attributed to increased equity outflows and rising crude oil prices, which were exacerbated by escalating tensions in the Middle East.

Traders reported that the RBI took action in both the non-deliverable forwards and local spot forex markets to ensure that the rupee remained above the psychologically significant level of 84. On Friday, the currency settled at 84.06 after briefly hitting a record low of 84.07 during intraday trading, reflecting a slight decrease of 0.1% week-on-week.

This recent dip in foreign exchange reserves serves as a reminder of the delicate balance that the RBI must maintain in managing the country’s currency and economic stability. As global economic conditions continue to fluctuate, the RBI's proactive measures will be essential in safeguarding the rupee and ensuring that India remains resilient in the face of external pressures. Understanding these dynamics is crucial for investors and stakeholders as they navigate the complexities of the financial landscape.