India’s foreign exchange reserves dropped sharply to a more than one-year low of 681.4 billion dollars for the week ended May 22, according to the Reserve Bank of India. The reserves had stood at 688.89 billion dollars in the previous week, marking a decline of nearly 7.5 billion dollars in just seven days.
The fall was mainly driven by a decline in the value of the RBI’s gold reserves, which slipped by 4.5 billion dollars to 114.7 billion dollars. Foreign currency assets, another major component of the reserves, also fell by nearly 3 billion dollars to 543 billion dollars.
India’s forex reserves had earlier touched an all-time high of 728.4 billion dollars in February this year. However, rising tensions in the Middle East and the ongoing U.S.-Iran conflict have put pressure on the rupee, forcing the RBI to intervene in the forex market by selling dollars.
The rupee has weakened nearly 4 percent since the conflict began, as rising crude oil prices and capital outflows affected investor sentiment and clouded India’s economic outlook. During the reporting week, the rupee briefly hit a record low of 96.96 against the U.S. dollar before recovering to close at 95 per dollar following strong RBI intervention.
The RBI also said India’s Special Drawing Rights with the IMF declined slightly to 18.7 billion dollars, while the country’s reserve position with the International Monetary Fund fell to 4.8 billion dollars. Meanwhile, Prime Minister Narendra Modi urged citizens to help conserve foreign exchange by reducing unnecessary foreign travel, cutting fuel consumption, and avoiding gold purchases for a year.
