Friday, 02 Oct, 2026
According to market estimates cited in recent reports, around USD 10.9 billion of the fall in foreign currency assets was attributable to actual dollar sales, while the remaining decline was linked to valuation losses. Image Source: IANS
India’s gold reserves increased by USD 68 million to USD 111.292 billion during the week.
India’s foreign exchange reserves declined sharply by USD 14.881 billion to USD 765.901 billion in the week ended September 18, marking a significant reversal after reserves had touched a record high earlier this month. According to data released by the Reserve Bank of India (RBI), the decline was primarily driven by a fall in foreign currency assets, while the movement also reflected the central bank’s ongoing intervention in the foreign exchange market and valuation changes in its overseas assets.
Foreign currency assets, the largest component of India’s reserves, fell by USD 14.816 billion to USD 630.980 billion during the week. The decline in FCAs accounted for almost the entire fall in the country’s overall reserves. Since these assets are reported in US dollar terms and include securities and deposits denominated in major international currencies, their value can change not only because of actual foreign exchange transactions but also due to fluctuations in the value of currencies such as the euro, pound sterling and Japanese yen against the US dollar.
The latest decline was therefore not entirely the result of dollar sales by the RBI. According to market estimates cited in recent reports, around USD 10.9 billion of the fall in foreign currency assets was attributable to actual dollar sales, while the remaining decline was linked to valuation losses. This distinction is important because weekly movements in India’s headline forex reserves can reflect a combination of intervention, currency movements and changes in the value of reserve assets.
Other components of the reserves recorded relatively modest changes. India’s gold reserves increased by USD 68 million to USD 111.292 billion during the week. Special Drawing Rights held with the International Monetary Fund declined by USD 106 million to USD 18.739 billion, while India’s reserve position with the IMF fell by USD 27 million to around USD 4.89 billion.
Source: Reserve Bank of India
The latest fall comes after an exceptional increase in India’s foreign exchange reserves earlier in September. Reserves had climbed to a record USD 785.706 billion in the week ended September 5, following a weekly increase of nearly USD 44.9 billion. The surge was largely driven by a substantial increase in foreign currency assets following foreign currency inflows under the RBI’s FCNR(B) deposit swap scheme. The scheme was introduced to encourage banks to mobilise foreign currency deposits from non-resident Indians and strengthen the country’s foreign exchange position.
The concessional swap facility generated sizeable foreign currency inflows, with banks mobilising substantial dollar deposits from non-resident Indians. By September 18, the facility had reportedly mobilised around USD 143.6 billion in foreign currency inflows. While these inflows strengthened India’s external buffers, they also resulted in a substantial increase in rupee liquidity in the domestic banking system, requiring the RBI to undertake additional liquidity-management operations.
The reserves subsequently declined from the September peak, falling to USD 780.782 billion in the week ended September 11 before dropping by another USD 14.881 billion in the week ended September 18. The movement highlights the unusually sharp swings in India’s reserve position over the past few weeks, with the latest decline occurring after a record accumulation of foreign exchange.
Pressure on the rupee has also remained an important factor behind the RBI’s recent market operations. Higher crude oil prices and elevated US Treasury yields have increased pressure on the Indian currency, as expensive oil raises India’s import bill and consequently increases demand for foreign currency. At the same time, higher US yields can encourage capital flows towards dollar-denominated assets, adding to pressure on emerging-market currencies.
Market participants have pointed to crude oil prices moving above USD 105 per barrel and US Treasury yields rising above 5 per cent as factors contributing to the pressure on the rupee. In response, the RBI has been intervening in the foreign exchange market through a combination of spot and forward transactions. The objective of these interventions is to manage excessive volatility in the currency rather than defend a particular exchange-rate level.
The RBI has also used dollar-rupee sell/buy swaps as part of its broader foreign exchange and liquidity-management strategy. Such transactions can influence both the level of foreign exchange reserves and the amount of rupee liquidity available within the banking system. The central bank’s operations have become particularly relevant after the large foreign currency inflows generated through the FCNR(B) deposit swap scheme created a significant liquidity overhang in the domestic financial system.
Recent market data indicate that banking-system liquidity surplus fell substantially from a record INR 11.16 trillion to around INR 4.92 trillion by September 21. The decline followed a combination of RBI measures, including foreign exchange swaps, open-market bond sales and other liquidity operations. The central bank reportedly sold INR 750 billion worth of bonds over the preceding week and planned another INR 250 billion of bond sales, while banks parked around INR 3.4 trillion with the RBI through reverse repos. Market participants also estimated that the RBI had conducted foreign exchange swaps of roughly USD 1 billion a day over a 10-session period.
The latest movement in reserves therefore needs to be viewed alongside the RBI’s broader efforts to manage both currency volatility and domestic liquidity. The central bank is effectively balancing several competing considerations: maintaining adequate foreign exchange buffers, limiting excessive volatility in the rupee, absorbing surplus liquidity generated by foreign currency inflows and ensuring orderly conditions in financial markets.
India’s reserve position has also undergone a significant recovery since the middle of the year. Forex reserves had fallen to around USD 666.9 billion in the week ended June 26 amid heightened global financial volatility and developments linked to the West Asia crisis. The RBI had intervened in the foreign exchange market through dollar sales as pressure on the rupee intensified. From that June low to USD 765.9 billion as of September 18, India’s reserves have therefore increased by nearly USD 99 billion despite the sharp fluctuations recorded in recent weeks.
The current reserve level consequently remains substantially higher than the June low, even though it is around USD 19.8 billion below the record level reached earlier in September. The contrasting movements underline how rapidly India’s external reserves can change in response to foreign currency inflows, central bank intervention, exchange-rate movements, asset valuations and developments in global commodity and financial markets.
The latest data should therefore be viewed not simply as a depletion of India’s foreign exchange buffer but as part of a broader period of active reserve and liquidity management by the RBI. The sharp rise in reserves following the FCNR(B) deposit swap inflows, followed by subsequent declines amid currency-market intervention and valuation movements, illustrates the multiple factors influencing the headline reserve figure.
With crude oil prices, US Treasury yields, global capital flows and geopolitical developments continuing to influence currency markets, India’s foreign exchange reserves will remain an important indicator of the country’s external-sector resilience. At the same time, the composition of the reserves and the reasons behind weekly changes will be increasingly important in assessing whether movements represent actual changes in the RBI’s foreign currency holdings or are primarily the result of valuation effects and short-term market operationsm
