India’s forex reserves lowest in 10 months after rupee crashes to all-time low of 86.04 against US dollar

India’s foreign exchange (forex) reserves plunged for the fifth consecutive week to hit a 10-month low of $634.59 billion as of January 3. Data from the Reserve Bank of India (RBI) showed on Friday that the forex kitty declined by $5.7 billion in the reported week after falling by a cumulative $17.8 billion in the previous three weeks. Forex reserves have fallen by about $70 billion from their all-time high of $704.89 billion in late September 2024.

In the previous reporting week, the overall forex kitty declined by $4.112 billion to $640.279 billion. Forex reserves have been on a declining trend for the last few weeks, and the significant plunge has been attributed to the central bank’s revaluation and forex market interventions to help reduce the volatility in the domestic currency unit amid the latest all-time low.

Also Read: FPIs resume selling spree in January, pull out nearly ₹12,000 crore from Indian equities. What’s in store ahead?

The Indian rupee has faced persistent headwinds over recent weeks, as the US dollar has strengthened and capital flows have slowed following a slowdown in India’s economic growth. The central bank has routinely intervened via state-run banks in the foreign exchange market to limit the rupee’s losses.

For the week ended January 3, foreign currency assets (FCA), a major component of the reserves, decreased by $6.441 billion to $545.48 billion. Expressed in dollar terms, the FCA include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Also Read: How does RBI’s CRR cut affect banks and which banking stocks to buy now? Here’s experts take

Changes in FCA are caused by the RBI’s intervention in the forex market and the appreciation or depreciation of foreign assets held in reserves. The central bank intervenes on both sides of the forex market to curb any undue volatility in the rupee.

Gold reserves increased by $824 million to $67.092 billion during the week. The Special Drawing Rights (SDRs) were down by $58 million to $17.815 billion. The forex reserves include India’s reserve tranche position in the International Monetary Fund (IMF). In the reporting week, India’s reserve position with the IMF was down by $18 million at $4.199 billion.

Also Read: Sterling falls for fourth straight day to hit 14-month low after US jobs data, 30-year gilts highest since July 1998

Indian rupee falls to record low of 86.04 against US dollar

The rupee declined 18 paise to breach the 86 mark against the US dollar for the first time on Friday, January 10, as it failed to resist pressure from a stronger American currency and a huge outflow of foreign funds. The local unit settled at 86.04 against the US currency.

Forex traders said that soaring crude oil prices overseas and negative sentiment in domestic equity markets also weighed down on the Indian currency. The domestic unit fell 0.2 per cent this week, its tenth consecutive weekly fall.

Also, the US dollar strengthened on increased demand amid the anticipation of restrictive trade measures by the new US administration. At the interbank foreign exchange, the rupee opened at 85.88 and hit the intra-day peak of 85.85 before breaching the 86-mark to settle at the lowest-ever level of 86.04 than the greenback, 18 paise lower than its previous close.

Also Read: Sensex, Nifty 50 fall for third consecutive session. What is driving Indian stock market down? Explained with 5 factors

On Thursday, the rupee gained five paise to settle at 85.86 against the US dollar, recovering from a steep 17-paise decline in the preceding session. The 10-year US bond yields also rose to its April 2024 level at 4.69 per cent.

The global oil benchmark of Brent crude surged 1.96 per cent to USD 78.43 per barrel in futures trade. In the domestic equity market, the 30-share BSE Sensex declined 241.30 points, or 0.31 per cent, to settle at 77,378.91 points.

The Nifty dropped 95.00 points, or 0.40 per cent, to 23,431.50 points. The indices have been on the downward track for the past three sessions. Foreign institutional investors (FIIs) offloaded ₹2,254.68 crore in the capital markets on a net basis on Friday, according to exchange data.