India’s foreign exchange reserves suffered their largest weekly drop on record, falling by $17.76 billion to a four-month low of $657.8 billion for the week ending November 15, 2024. This marks the sharpest decline since records began in 1998, surpassing the previous high of $15.5 billion during the global financial crisis of October 2008. The primary causes for the fall include the strengthening of the US dollar, the Reserve Bank of India’s (RBI) intervention to protect the rupee, and declining gold prices.
Key Reasons for the Decline
RBI’s Dollar Sales: To curb volatility in the foreign exchange market, the RBI has been selling dollars to defend the rupee, which has faced downward pressure due to the US Federal Reserve’s rate cut cycle since September 2024. The rupee depreciated 0.46% against the dollar in November so far.
Strengthening of the US Dollar: The US dollar strengthened significantly post the US presidential election, which exacerbated the pressure on emerging market currencies, including the rupee. The dollar index, which had been around 103-104, surged to 107.5 during the review period.
Other Contributing Factors
Rising Imports and Falling Exports: With increasing imports and less coverage of receivables by exporters, dollar purchases outpaced sales.
Gold Price Drop: International gold prices fell by 4.5%, contributing to the decline in reserves, as a large portion of India’s reserves is held in gold.
Impact of Global Factors
US Election Impact: Post-election foreign investor withdrawals and stronger dollar dynamics led to a decline in forex reserves, especially with a weakening of the euro and GBP against the dollar.
Foreign Investment Outflows: Foreign institutional investor (FII) outflows from both equity and debt markets also contributed significantly to the forex reserves drop.
Summery of the news
| Why in News | Key Points |
|---|---|
| Sharp Decline in Forex Reserves | India’s forex reserves fell by $17.76 billion in the week ending November 15, 2024, to a four-month low of $657.8 billion, the sharpest weekly fall since 1998. |
| RBI’s Dollar Sales | RBI sold dollars to protect the rupee from excessive volatility, which contributed to the reserves’ fall. |
| Strengthening of US Dollar | The US dollar surged after the US presidential election, rising the dollar index from 103-104 to 107.5, increasing pressure on India’s forex reserves. |
| Gold Price Decline | Gold prices dropped by 4.5% to $2,563.3 per ounce, affecting the value of India’s reserves held in gold. |
| Impact on the Rupee | The rupee depreciated 0.46% against the dollar in November 2024, leading to a decline in forex reserves. |
| Previous Sharpest Fall | The previous highest weekly fall in forex reserves was $15.5 billion during the global financial crisis of 2008. |
| Rising Imports | Increasing imports contributed to higher dollar demand, exacerbating the fall in forex reserves. |
| Foreign Institutional Investor (FII) Outflows | FII outflows from equity and debt markets were significant contributors to the decline in forex reserves. |
| Date of Record High Forex Reserves | India’s forex reserves had reached a record high of $705 billion on September 27, 2024. |
Adani Group Acquires 85.8% Stake in Air ...
NTPC to Establish Nuclear Power Project ...
CCI Approves UltraTech's ₹3,954 Cr India...
