India’s forex reserves record nearly $18 billion drop in a week amid investor exit

Data from the Reserve Bank of India (RBI) reveals that forex reserves fell by $17.8 billion, reaching $657.9 billion.

This significant drop was primarily attributed to a $15.5 billion reduction in foreign currency assets, which now stand at $569.8 billion, and a $2 billion decline in gold reserves, bringing them to $65.7 billion.

Since peaking at $704.9 billion on September 27, India’s reserves have contracted by $47 billion over a span of 49 days.

Market experts noted that this sharp decline underscores the central bank’s active intervention in the foreign exchange market, as it supplied dollars to accommodate the heightened demand driven by foreign portfolio investors exiting equity markets.

However, the reduction in reserves isn’t solely due to dollar sales.

It also reflects valuation changes in foreign currency bonds and non-dollar assets when converted to dollar terms.

Dealers estimate that revaluation losses account for less than $10 billion of the overall decline.

Despite the recent dip, India’s current forex reserves remain robust, providing enough coverage for 11 months of imports.