Forex Reserves Decline to $644 Billion, Lowest Since May

India's foreign exchange reserves have decreased for the third consecutive week, reaching $644.39 billion as of the week ending December 20. This marks the lowest level since May 3, according to data released by the Reserve Bank of India.

During this reporting week, reserves fell by $8.48 billion, following a previous decline of $2 billion that brought reserves down to $652.8 billion.

Central Bank Interventions

The primary reason for this decline is attributed to the Reserve Bank of India's (RBI) significant intervention in the currency market. The RBI has been actively selling dollars from its reserves to support the Indian rupee as it faces pressure due to a strengthening US dollar.

Rupee Performance

As of this Friday, the Indian rupee weakened by 53 paise, hitting a record low of 85.79 against the US dollar. This drop represents the rupee's steepest single-day decline since February 2023. Economists warn that the rupee may face continued challenges, especially as uncertainties are expected to increase in 2025, following the anticipated economic measures by incoming US President Donald Trump.

Experts project that the Indian rupee could fluctuate within a range of 83.20 to 87.00 against the dollar throughout 2025.

In terms of foreign investment, December has seen an influx of Rs 29,240 crore into Indian bonds and equities, contrasting sharply with November when foreign portfolio investors withdrew Rs 21,444 crore from the market.

Breakdown of Reserves

For the week ending December 20, foreign currency assets—a significant part of India’s reserves—decreased to $556.56 billion. These assets include the value changes of foreign currencies like the euro, pound, and yen against the US dollar. Additionally, India's gold reserves experienced a decline, totaling $65.73 billion for the week.

The current account deficit of India has widened slightly, now sitting at 1.1% of GDP for the first quarter of FY25, indicating ongoing economic adjustments amid global financial pressures.

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