India’s forex reserves declined by $1.542 billion to $365.5 billion in the week to November 25, the RBI data released on Friday showed. The country’s foreign exchange reserves had touched a record high of $371.279 billion last month.
Forex dealers said the decline was primarily due to the RBI selling dollars to stem the fall in the rupee, which almost closed at a record low after it touched a level of 68.86 intraday on Thursday. The currency closed at 68.75, recouping some of its losses because of RBI’s intervention.
The fall in the rupee has been primarily due to the dollar’s phenomenal rise ever since Donald Trump won the US presidential election. The dollar index, which measures the strength of the greenback vis-a-vis a basket of other currencies, has gained nearly 4% since the day of the election, and is currently hovering around at the 101.50 level.
President-elect Trump’s spending plan for infrastructural development has pushed the market to factor in a higher probability of rate hikes by the US Federal Reserve, which is why the dollar has been trading strong against all emerging market currencies. In fact, Fed fund futures on Friday showed a 100% probability of a rate hike at the December FOMC meet.
Foreign currency assets, which constitute a significant portion of overall reserves, fell by $1.496 billion to $341.276 billion in the week under review.
The country’s gold reserves came in at $20.460 billion, nearly unchanged from the previous week.
Meanwhile, redemption of deposits made under the FCNR(B) scheme had started late last month, and market participants believe that the RBI may have to dip into the reserves to meet some of the resultant dollar demand.
Some experts have also said the rupee could fall to as low as 70-72 against the dollar because the RBI would want to keep the forex reserves as high as possible.