India's FX reserves dip for seventh straight week to hit over two-month low

MUMBAI: India’s FX reserves fell to a more than two-month low of $719.75 billion as of the week ended October 23, marking their seventh straight week of declines and reflecting the central bank’s absorption of oil-linked dollar demand and market interventions.

Week-on-week, the reserves were down by $1.27 billion, driven by a fall in the value of the Reserve Bank of India’s gold holdings, which stood at $103.1 billion, down $2.6 billion week-on-week.

The value of the RBI’s foreign currency assets, meanwhile, rose by $1.3 billion week-on-week to $593.2 billion.

Earlier in October, the central bank announced its latest set of measures to support the rupee, including a special window to meet the daily dollar requirements of three state-run oil-marketing companies.

Under such an arrangement, typically used during periods of currency stress, the RBI provides oil companies dollars directly from its foreign exchange reserves.

The supply of dollars combined with market interventions to support the rupee and dollar-rupee sell/buy swaps conducted to drain excess rupee liquidity from the banking system have weighed down India’s reserves after they hit a record high of $785.7 billion in late-August.

India’s FX reserves surge $45 billion on-week to hit record high on robust capital flows

The record high came on the back of policy measures to draw capital inflows. The measures attracted $143.5 billion between June 8 and September 18, with nearly $133 billion coming via foreign-currency deposits.

While the dollar inflows boost the RBI’s spot FX reserves, they are reflected as a future liability in its forward book.

Changes in foreign currency assets, expressed in dollar terms, include the effect of appreciation or depreciation of other currencies held in its reserves.

Foreign exchange reserves include India’s Reserve Tranche position in the International Monetary Fund.

Foreign exchange reserves (in million US dollars)