India's foreign exchange (forex) reserves have witnessed a significant drop for the sixth consecutive week, reaching a near three-month low of $675.65 billion as of November 8, 2024, according to the data released by the Reserve Bank of India (RBI). This marks a $6.5 billion reduction in the reporting week, extending a downward trend that began in late September 2024 when reserves peaked at a record-high of $704.89 billion. Since then, India's forex reserves have declined by a total of $29.2 billion, indicating a marked shift in the country’s reserve levels.

The data also revealed that foreign currency assets (FCA), a significant component of India’s forex reserves, fell by $4.467 billion, reaching $585.383 billion by November 8. FCA fluctuations are largely influenced by the appreciation or depreciation of non-US currencies, such as the euro, pound, and yen, which are held as part of the reserves. These fluctuations can result from changes in the value of foreign assets as well as central bank interventions in the foreign exchange market.

Gold reserves, another important part of India’s foreign exchange holdings, also saw a decline of $1.936 billion, dropping to $67.814 billion during the same period. Additionally, India’s Special Drawing Rights (SDRs), which are supplementary international reserve assets, fell by $60 million to $18.159 billion. India’s reserve position with the International Monetary Fund (IMF) decreased by $14 million to $4.298 billion, marking a notable shift in the composition of the country's total reserves.

The RBI's intervention in the forex market continues to play a crucial role in stabilizing the rupee, especially during periods of significant volatility. The recent drop in India’s reserves comes amid a strengthening US dollar and rising US bond yields, driven in part by political events such as the US elections and the subsequent impact on the dollar. These factors have put pressure on the rupee, which weakened to an all-time low of 84.38 during the reporting period.

Traders and analysts have pointed out that the RBI’s intervention helped prevent further depreciation of the rupee. Despite hitting a record low earlier in the week, the rupee settled at 84.3950 on Thursday, averting deeper losses due to the central bank’s timely actions. The RBI continues to intervene on both sides of the forex market, purchasing or selling foreign currencies to prevent excessive volatility in the rupee and maintain stability.

The current situation underscores the vulnerability of the rupee and the importance of forex reserves in shielding India’s economy from global economic uncertainties. As the rupee faces ongoing pressure from both internal and external factors, the RBI’s role in managing India’s foreign exchange reserves remains critical to maintaining financial stability in the country.

This decline in forex reserves also highlights the dynamic nature of global financial markets and the need for robust policies to protect national economies from the impacts of currency fluctuations and other global financial shocks. The situation is a reminder of the continuous balancing act that central banks must perform to maintain economic stability.

As the rupee faces continued pressure, the Indian government and the RBI will need to carefully monitor the situation and take appropriate steps to safeguard the country’s forex reserves and economic health.

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