India's foreign exchange kitty down $10 bn, sharpest in over a year

India’s foreign exchange reserves fell by $9.8 billion to $686.80 billion in the week ended January 2, the steepest weekly decline in over a year, according to the latest data released by the Reserve Bank of India (RBI). 

The previous largest weekly decline was recorded in the week ended November 15, 2024. 

The fall in reserves was on the back of a sharp decline in foreign currency assets, which dropped by $7.6 billion to $552 billion during the reported week. Gold reserves also declined by $2.1 billion. 

The decline in reserves came as the central bank stepped up efforts to curb volatility in the foreign exchange market, with the rupee coming under pressure amid sustained capital outflows. 

 

Gaura Sen Gupta, chief economist at IDFC First Bank, said the fall in reserves was due to dollar sales by the RBI, coupled with valuation losses arising from a decline in gold prices.

 

“The reserves fell because of dollar selling during the week, which was around $7 billion, while the remaining decline of about $2.7 billion was due to revaluation losses. Gold prices declined 4.4 per cent week-on-week. Dollar selling was because of capital outflows owing to a negative balance of payments,” Gupta said.

 

India’s foreign exchange reserves had hit a record high of $705 billion in September 2024.

 

During the reported week, the rupee depreciated 0.38 per cent against the US dollar, while gold prices fell 4.43 per cent.

 

The rupee was under pressure during the reported week due to dollar demand among corporate amid delayed US trade deal. Foreign exchange market participants said the central bank intervened to contain volatility amid continued foreign outflows.

 

“If we look at the latest data, the RBI has been a net seller of dollar. In such times when rupee is depreciating, the RBI will keep intervening, wherever it feels that it has to smooth increased volatility. There is no level that the RBI particularly targets, but tries to curb excessive shocks to the market,” said Aditya Vyas, chief economist at STCI Primary Dealer Ltd.

 

After depreciating 4.74 per cent in 2025, its steepest fall in three years, the rupee continued to be under pressure with over 0.32 per cent decline so far in January. On Friday, the Indian unit weakened 0.15 per cent to close at 90.16 against the dollar.

 

The rupee could be under pressure in the coming days with continuing global headwinds, including prospects of more US sanctions and an unlikely trade deal, and a large stock of maturing short forward positions, which rose to $66.04 billion by November-end.