India’s foreign exchange reserves fell by the most since November 2024 as analysts said the central bank intervened to support the rupee amid volatility from the Iran War.
The forex stockpile fell by $11.68 billion in the week of March 6, according to Reserve Bank of India data released Friday.
“The drop in FX reserves is reflective of the RBI’s likely intervention to shield the rupee amid pressures in the first week of the war,” said Sakshi Gupta, principal economist at HDFC Bank Ltd. “In the near term, the focus from the central bank will be to curtail volatility in the Indian rupee.”
The Iran War has pushed the rupee to record lows as oil prices surge following blockages in the Strait of Hormuz. Crude prices have risen nearly 37% since the start of the war, leading to a rush into haven assets and a selloff across emerging markets, especially fuel-importing nations like India.
The RBI did not respond to an email seeking comment.
The central bank has stepped up support for the rupee and sovereign bonds as oil prices swing. It purchased bonds through open market operation auctions and secondary market buying to infuse liquidity into the banking system, which may come under strain from dollar selling to support the currency.
The decline in reserves reflects about $6.1 billion of dollar sales and a roughly $5.4 billion revaluation loss on factors like strength in the greenback, according to Gaura Sen Gupta, chief economist at IDFC First Bank Ltd.
The Bloomberg Dollar Spot Index rose by 1.3% in the March 6 week, the most since mid-November 2024. Gold meanwhile receded more than 2%, which also contributed to the drawdown in reserves.
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