Forex Reserves See Sharp Weekly Fall

Core Insights - India's foreign exchange reserves experienced a significant decline of $9.8 billion, reaching $686.80 billion in the week ended January 2, marking the steepest weekly drop in over a year [2][3] - The decline was primarily driven by a sharp decrease in foreign currency assets, which fell by $7.6 billion to $552 billion, alongside a $2.1 billion reduction in gold reserves [2][3] Group 1: Reserve Decline Factors - The Reserve Bank of India (RBI) increased its efforts to stabilize the foreign exchange market, responding to pressure on the rupee amid ongoing capital outflows [3][7] - The decline in reserves was attributed to approximately $7 billion in dollar sales by the RBI, with an additional $2.7 billion loss due to revaluation from falling gold prices, which decreased by 4.4% week-on-week [4][8] Group 2: Market Conditions - The rupee depreciated by 0.38% against the US dollar during the reported week, influenced by corporate demand for dollars and uncertainties surrounding a delayed US trade deal [7][9] - The RBI's intervention aimed to mitigate volatility in the foreign exchange market, with no specific target level for the rupee but a focus on reducing excessive market shocks [8] Group 3: Future Outlook - The rupee has faced continued pressure, having depreciated 4.74% in 2025, with an additional decline of 0.32% noted in January [9] - Factors contributing to ongoing pressure include potential US sanctions, an unlikely trade deal, and a significant stock of maturing short forward positions, which reached $66.04 billion by the end of November [9]