India's foreign exchange reserves declined by $4.9 billion to $780.7 billion in the week ended September 11, according to Reserve Bank of India (RBI) data released Friday, pulling back from the record high of $785.71 billion touched just one week earlier.
What Drove the Decline
The fall in reserves came as the valuation of gold reserves decreased by $2.6 billion to $111.2 billion, while foreign currency assets (FCA) — the largest component of India's reserves — declined by $2.4 billion to $645.7 billion. The decrease in foreign currency assets is likely attributable to the RBI selling dollars in the spot market to prevent excessive depreciation of the rupee.
The Record High That Preceded It
Reserves had touched an all-time high of $785.71 billion in the week ended September 4, following a sharp weekly increase of $44.90 billion — itself coming on the heels of an $11.47 billion rise the week before that, to $740.80 billion. That rapid, back-to-back surge reflected the ongoing FCNR-B deposit scheme, which has been driving substantial foreign currency inflows into India ahead of its August 31 closure deadline.
The Bigger Picture Since the Scheme Began
Despite the latest weekly pullback, India's reserves remain significantly elevated on a broader basis: on a net basis, since the start of the FCNR-B scheme, foreign exchange reserves have risen $99 billion — from $681 billion as of June 5 to $780 billion as of September 11. That scale of accumulation underscores just how substantial an impact the concessional deposit program has had on India's overall reserve position over the past three months.
What's Happening With the Rupee
The rupee's movements have tracked closely alongside the reserve fluctuations: it gained 15 paise to close at 95.81 against the US dollar on Friday, bouncing back from an intraday low of 95.94 and the previous close of 95.96. Meanwhile, the benchmark bond yield rose to 7.14%, its highest level in the past four months — reflecting broader upward pressure on Indian yields even as the currency itself showed some resilience.
Why the RBI Is Actively Intervening
The RBI's dollar sales reflect its ongoing role in managing rupee volatility, particularly as the currency has faced sustained pressure this year from elevated global crude oil prices tied to the ongoing US-Iran war, alongside broader dollar strength driven by hawkish Federal Reserve policy expectations. By selling dollars from its reserves, the central bank can help cushion sharp swings in the rupee's value, though doing so directly reduces the headline reserve figure in the short term.
What This Means Going Forward
With the FCNR-B scheme's concessional window now closed as of the end of August, the sharp weekly inflows that drove reserves to their September record are unlikely to repeat at the same pace going forward. Whether reserves stabilize near current levels or continue drifting lower will likely depend on the trajectory of global oil prices, the pace of any further RBI intervention to manage rupee volatility, and broader capital flow trends into and out of Indian markets. For the RBI's full weekly data release, see the Reserve Bank of India's official bulletin.