India Forex Reserves Record Largest Weekly Drop in a Year

India's foreign exchange reserves recorded their most significant weekly drop in more than a year, falling by $11.68 billion to a total of $716.81 billion for the week ending March 6. This decline, reported by the Reserve Bank of India (RBI), follows a reserve level of $728.49 billion in the preceding week. The sharp contraction in reserves was largely attributed to heavy dollar sales by the central bank to support the rupee. The domestic currency has been under intense pressure resulting from the conflict involving Iran and the resulting surge in global energy costs. Market analysts also pointed to rising Treasury yields in the United States and general dollar strength as contributing factors to the downward trend. Gaura Sen Gupta, an economist at IDFC FIRST Bank, provided a breakdown of the factors influencing the reserve movement. > Gaura Sen Gupta estimates the decline in reserves reflected net dollar sales of about $6.1 billion by the RBI and valuation losses of roughly $5.4 billion. To mitigate the liquidity impact of these interventions, the RBI conducted on-screen bond purchases. The data indicates that foreign currency assets bore the brunt of the decline, falling by $9.8 billion to reach $563.24 billion. Concurrently, the value of Gold (XAU/USD) reserves saw a reduction of $1.6 billion, bringing the total to $130.01 billion. Other reserve components also declined slightly, with Special Drawing Rights falling to $18.72 billion and the reserve position in the International Monetary Fund reaching $4.82 billion.