India's forex reserves fall by $8.58 billion to $726 billion in fifth straight weekly drop

India's foreign exchange reserves fell by $8.578 billion to $726.027 billion in the week ended October 9, according to data released by the Reserve Bank of India on Friday.

It was the fifth consecutive weekly decline. In the previous week, reserves had dropped by $12.952 billion to $734.606 billion. The reserves hit a record of $785.706 billion in the week ended September 4, boosted by a special concessional swap window for diaspora deposits, and have been falling since.

Where the drop came from

Foreign currency assets, the largest part of the reserves, fell by $7.142 billion to $597.605 billion. These are measured in dollars, so they also reflect changes in the value of other currencies held, such as the euro, pound and yen.

The value of gold reserves declined by $1.319 billion to $105.094 billion. Special Drawing Rights fell by $109 million to $18.548 billion, while India's reserve position with the International Monetary Fund stood at about $4.78 billion.

Rupee defence and oil

Market reports linked the recent fall in reserves largely to the RBI selling dollars to support the rupee, alongside high crude oil prices and foreign portfolio outflows. The rupee, which came close to a record low of nearly 97 per dollar earlier this month, recovered last week and closed at 94.96 on Friday, according to the Free Press Journal, its strongest close since early September. Over the week, the currency gained about 1.9 per cent, its best weekly showing in seven months.

Why it matters

Reserves act as India's buffer against external shocks, helping the central bank smooth sharp currency moves and pay for imports. Even after five weeks of declines, reserves are still about $34.9 billion higher than at the end of March and about $28.2 billion higher than a year ago, according to RBI figures reported by PTI. But with oil prices elevated because of disruption in the Gulf, how much the RBI spends to steady the rupee will be closely watched in the weeks ahead.