India's forex reserves fall $5bn to $721bn amid currency defence

The Reserve Bank of India reported on Friday that the nation's forex kitty shed $5.011 billion during the week to October 16, bringing total reserves to $721.016 billion. This follows a steeper $8.578 billion dip in the previous week, signalling an ongoing correction from record levels reached just weeks earlier.

The reserves had peaked at an all-time high of $785.706 billion in the week ended September 4, buoyed by unprecedented foreign currency inflows. The spike was predominantly driven by a special concessional swap scheme targeting deposits from overseas Indians, through which domestic banks mobilised a record $133 billion. However, the reserves have been in steady decline since that apex.

Analysts attribute the recent deterioration to two primary factors: the deployment of foreign currency non-resident (FCNR(B)) deposits accumulated during the diaspora campaign, and active currency defence operations by the central bank. The RBI has been selling dollars to support the rupee as external pressures mounted on India's currency in recent weeks.

Foreign currency assets, the largest component of total reserves, decreased by $5.758 billion to $591.847 billion during the reporting week. The central bank's weekly data encompasses the combined impact of currency movements and valuation changes on holdings denominated in non-dollar currencies.