India's foreign exchange reserves experienced their most significant decline in over a year, falling to $716.81 billion in the week ending March 6 from $728.49 billion the previous week, according to Reserve Bank of India data.
Key Takeaways
India's foreign exchange reserves fell by $11.68 billion to $716.81 billion in the week ending March 6 due to central bank interventions to support the rupee against pressures from the Iran war and rising oil prices. The decline was driven by heavy dollar sales and valuation losses, with analysts estimating net dollar sales of about $6.1 billion by the RBI.
- India's forex reserves fell to $716.81 billion in the week ending March 6
- Reserve Bank of India sold dollars to support the rupee amid Iran war pressures and rising oil prices
- Analysts estimate net dollar sales of about $6.1 billion by the RBI, with valuation losses of roughly $5.4 billion
- Foreign currency assets fell $9.8 billion, while gold reserves dropped $1.6 billion
The drop came amid heavy dollar sales by the central bank to support the rupee against pressures stemming from the Iran war and surging oil prices. The rise in U.S. yields and dollar strength further contributed to the decline in reserves. Analysts estimated that the decline reflected net dollar sales of about $6.1 billion by the RBI, along with valuation losses of roughly $5.4 billion. Gaura Sen Gupta, an economist at IDFC FIRST Bank, noted that the RBI sterilized the liquidity impact of these dollar sales through on-screen bond purchases.
The decline in reserves was primarily driven by a decrease in foreign currency assets, which fell by $9.8 billion, while the value of gold reserves dropped by $1.6 billion. Changes in foreign currency assets include the effect of appreciation or depreciation of other currencies held in India's reserves.
Meanwhile, Indian rupee forward premiums dropped further on Friday as market participants speculated that the Reserve Bank of India may conduct a foreign exchange swap following significant intervention in the currency market. Seven bankers suggested that the RBI might opt for a three-year $10 billion dollar/rupee buy-sell swap, reflecting the central bank’s past preference for swaps of similar magnitude and maturity.
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