India Forex Reserves Drop by $14.88 Billion to $765.9 Billion in Sharpest Weekly Decline in Two Years

India's foreign exchange reserves suffered their sharpest weekly contraction in nearly two years, tumbling by $14.881 billion to $765.901 billion in the week ended September 18. The slide follows a $4.924 billion fall recorded in the prior reporting week, marking two consecutive weeks of declines as the Reserve Bank of India (RBI) actively intervened to defend the local currency.

The drop represents the largest single-week reduction in the nation's reserve kitty since mid-November 2024. Central bank data released on Friday shows that the decrease was overwhelmingly driven by a steep fall in foreign currency assets, which contracted by $14.816 billion to $630.980 billion.

Breakdown of Reserve Components

The RBI's weekly statistical supplement provided a detailed breakdown of the components:

• Foreign Currency Assets (FCA): Fell by $14.816 billion to $630.980 billion, reflecting both direct currency market intervention and valuation changes in non-dollar assets such as the euro, pound, and yen.
• Gold Reserves: Rose marginally by $68 million to reach $111.292 billion, buoyed by firm global bullion prices.
• Special Drawing Rights (SDRs): Declined by $106 million to stand at $18.739 billion.
• Reserve Position with the IMF: Contracted by $27 million to $4.890 billion.

Despite the steep weekly drain, India's overall buffer remains substantial. The foreign exchange reserves remain higher by $74.8 billion compared to the end of March, and are up by $63.3 billion on a year-on-year basis.

Why the RBI Stepped In

The Indian rupee has faced intense pressure in recent weeks due to a convergence of adverse global and domestic factors. Elevated international crude oil prices have raised India's import bill and widened the trade deficit, while foreign institutional investors have pulled capital out of local equities. Meanwhile, rising US Treasury yields have reinforced the dollar's broad strength.

To keep the rupee from sliding beyond critical psychological thresholds, the central bank intervened across spot and forward currency markets. In addition to outright dollar sales in the market, the RBI deployed sell-buy swap operations to manage currency volatility and absorb liquidity, transactions that directly impact gross foreign exchange holdings.

Market Impact and Outlook for Investors

For domestic financial markets, large-scale dollar sales by the central bank suck rupee liquidity out of the banking system. A shrinking liquidity pool can push short-term money market yields higher and increase funding costs for domestic lenders and corporate borrowers.

While India's reserves still provide robust import cover, market participants expect continued currency volatility if energy prices remain elevated and global interest rate paths stay uncertain. Investors in rate-sensitive sectors—such as banking, real estate, and consumer durables—will be closely tracking the RBI's upcoming Monetary Policy Committee deliberations to assess whether persistent currency pressures alter the central bank's liquidity stance.

Tags: Reserve Bank of India Indian Rupee Forex Reserves Foreign Portfolio Investors Crude Oil