India's FX reserves dip for seventh straight week to hit over two-month low

India's foreign exchange reserves have dropped to a two-month low of $719.75 billion, marking their seventh consecutive weekly decline, according to the latest data from the Reserve Bank of India. This downward trend is attributed to several factors, including the central bank's absorption of oil-linked dollar demand and market interventions to support the rupee.

Week-over-week, the reserves fell by $1.27 billion, primarily due to a decline in the value of the RBI's gold holdings, which decreased by $2.6 billion. The Reserve Bank of India's gold reserves stood at $103.1 billion, the lowest in the past two months.

On the positive side, the value of the RBI's foreign currency assets increased by $1.3 billion week-over-week to $593.2 billion. Earlier this month, the central bank unveiled measures to bolster the rupee, including a special window to meet the daily dollar requirements of three state-run oil-marketing companies. Under this arrangement, the RBI provides oil companies with dollars directly from its foreign exchange reserves, a practice often employed during periods of currency stress.

Despite these supportive measures, India's FX reserves have fallen after reaching a record high of $785.7 billion in late August. The record high was primarily driven by robust capital flows, with the RBI's spot FX reserves surging by $45 billion on a week-to-week basis. However, these gains were reflected as future liabilities in the forward book and were influenced by changes in the value of foreign currency assets.