India’s forex reserves drop $9bn to $689bn amid rupee defence

India’s foreign exchange reserves fell sharply by $9.3 billion to $688.9 billion as of August 1, Reserve Bank of India (RBI) Governor Sanjay Malhotra said on Wednesday. Economists attributed the steep decline to the central bank’s intervention in currency markets to defend the rupee against growing external headwinds, particularly tariff-related concerns.

The decline in reserves comes at a time when the rupee has been under renewed pressure.According to information,the domestic currency depreciated by 1.18% against the U.S. dollar during the week ending August 1,its sharpest weekly fall in nearly three years. The rupee has since weakened by another 0.2% this week, with traders noting it would likely have touched a new record low if not for the RBI’s persistent dollar sales.India is bracing for the imposition of a 25% tariff on its exports to the United States starting Friday. The escalation follows President Donald Trump’s warning of “very substantial” additional levies over India’s continued oil imports from Russia, further clouding trade sentiment and adding pressure on the rupee.

Detailed data on the foreign exchange reserves breakdown is expected to be released later this week. However, analysts believe a significant portion of the drawdown stemmed from the central bank’s use of reserves to manage rupee volatility in the face of global uncertainties.Meanwhile,at its latest policy review, the RBI left interest rates unchanged and maintained its economic growth forecasts. “Given that the Indian rupee is weakening and narrowing of the global interest rate differentials, the scope for rate reduction was slim,” noted Umesh Kumar Mehta, Chief Investment Officer at SAMCO Mutual Fund.

(Business Correspondent)