India's foreign exchange reserves fell by $2.36 billion to $583.53 billion during the week ended October 20, according to RBI data released on Friday.
In the preceding week the country’s forex reserves had increased by $1.15 billion, reversing a continuous decline over the previous five weeks.
The country’s foreign exchange reserves had fallen by $14.166 billion to a five-month low of $584.74 billion for the week ended October 6. With the fresh decline, the forex reserves have fallen even further.
This gives cause for concern as the RBI uses the country’s forex reserves to stabilise the rupee when it turns volatile.
The RBI intervenes in the spot and forwards markets by releasing more dollars to prevent the rupee from going into a free fall when it comes under pressure.
Any sharp decline in the country’s forex kitty leaves the RBI less headroom to intervene in the market to stabilise the rupee which could weaken the Indian currency.
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