RBI Sells Dollars to Slow Rupee Slide as Reserves Drop $60 Billion in Six Weeks

India's foreign exchange reserves have fallen by roughly $60 billion in six weeks as the Reserve Bank of India (RBI) sold dollars aggressively to slow the rupee's slide, The Economic Times reported. The rupee was described as one of Asia's worst-performing currencies over that stretch.

Contents

01

A $60 Billion Drawdown From a September Peak

1.1

Why the Rupee Came Under Pressure

1.2

Gold Holdings Also Slip

A $60 Billion Drawdown From a September Peak

Official data showed reserves at $726.027 billion on October 9, down from a lifetime high of $785.706 billion on September 4. In the reporting week alone, reserves fell by $8.578 billion, according to the RBI's weekly statistical supplement.

Foreign currency assets, the largest contributor to the reserves, fell by $7.142 billion in that week to $597.605 billion. Over the six weeks, this category declined by $50.563 billion, eroding 35% of the $143.596 billion the central bank had gathered between June and August through dedicated dollar mobilisation schemes and a swap window.

For readers new to forex, reserves are the foreign assets a central bank holds, mostly in dollars, and they are the buffer used to steady the local currency. Foreign currency assets are the dollar-denominated holdings within that buffer. A swap window is a central bank facility in which it exchanges rupees for dollars with banks under an agreement to reverse the transaction later, which is how the RBI built up the $143.596 billion in June to August before drawing it down.

Why the Rupee Came Under Pressure

The depletion was largely due to dollar sales by the RBI through large public sector banks to support the rupee. The currency was facing headwinds from higher crude oil prices, rising US yields and persistent outflow of foreign capital.

Higher crude oil prices matter for India because the country is a large importer of oil, and importers need dollars to pay for cargoes. Rising US yields can make dollar assets more attractive relative to emerging market holdings. Both forces tend to raise demand for dollars and add to pressure on the rupee.

Data from the National Securities Depository Ltd (NSDL) showed foreign portfolio investors had withdrawn a net $26.8 billion from the local markets so far this year. Foreign portfolio investors are overseas funds that buy Indian stocks and bonds, and their selling can add to demand for dollars when they convert rupee proceeds.

Gold Holdings Also Slip

India's gold reserves fell by $1.319 billion in the week to October 8, to $105.094 billion. Gold is the second major component of the reserves after foreign currency assets, so its weekly move sits alongside the larger dollar-driven decline in the headline number.

Taken together, the figures show the arithmetic of currency defence. The RBI's dollar sales absorb some of the pressure on the rupee, but they also draw down the buffer the central bank had built up earlier in the year, and the six-week decline has now taken back more than a third of that June to August accumulation.

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