India's foreign exchange reserves dropped $12.95 billion to $734.6 billion in the week ended Oct 2, recording their fourth consecutive weekly decline as the Reserve Bank of India (RBI) intervened to limit volatility in the rupee.
The country's reserves have fallen $51.1 billion from their record high of $785.7 billion in the week ended Sept 4.
Despite the decline, RBI Governor Sanjay Malhotra said reserves provide approximately 11 months of import cover and represent 94.4% of India's external debt.
Dollar sales, valuation losses weigh on reserves
According to a report by Business Standard, market participants attributed the reduction to central bank dollar sales and valuation changes affecting foreign currency and gold holdings.
According to market estimates, the RBI sold approximately $30 billion on a net basis during September.
Foreign currency assets, the largest component of reserves, declined $10.7 billion to $604.7 billion during the reported week.
Gold reserves decreased $2.3 billion to $106.4 billion, while special drawing rights increased $15 million to $18.7 billion.
India's reserve position with the International Monetary Fund (IMF) fell $15 million to $4.8 billion.
The latest decline followed an $18.3 billion weekly fall in the week ended Sept 25.
The rupee has weakened 1.62% against the dollar since September began, amid higher crude oil prices and external capital outflows.
RBI intervention
The central bank has used spot and forward market transactions to contain excessive currency fluctuations.
It has also undertaken dollar-rupee sell/buy swaps as part of its liquidity and foreign exchange management operations.
Earlier, a concessional foreign exchange swap facility launched on June 8 helped attract $143.6 billion in inflows by Sept 18.
Foreign currency non-resident bank deposits accounted for $132.98 billion, although that facility closed on Aug 31.
Valuation changes further affected reserves as the dollar strengthened against other major currencies.
During the reported week, gold prices declined 2.5% to $4,177 an ounce, while the dollar index advanced 1.12% to 102.10.
The latest drawdown follows an earlier recovery from $666.9 billion in the week ended June 26, when the RBI had intervened amid the West Asia crisis.
