Kamal Ghorui
MUMBAI: India’s foreign exchange reserves fell sharply by $10.3 billion in the week ended March 27, 2026, taking the total to $688.1 billion, driven largely by a decline in foreign currency assets and gold holdings amid currency market intervention by RBI.The fall was led by foreign currency assets, which dropped by $6.6 billion. These assets, the largest component of reserves, reflect valuation changes in non-dollar currencies such as the euro, pound, and yen, and include the impact of RBI’s intervention to stabilise the rupee. Gold reserves declined by $3.7 billion during the week. The fall in gold, despite its smaller share in total reserves, points to a correction in global gold prices over the period. Other components showed limited movement. Special Drawing Rights rose marginally by $17 million, while the reserve position in the IMF declined by $17 million. These changes did not offset the losses in foreign currency assets and gold.With this week’s decline, forex reserves have dropped for four consecutive weeks by over $40 billion. RBI said India’s forex reserves fell by $11.4 billion last week (ended March 20, 2026) to $698.4 billion. The prior week (ended March 13) saw a $7.1 billion fall to $709.8 billion. This has led to talk among commentators about special measures that could be undertaken to attract foreign exchange flows.The rupee had weakened by over 4% until Wednesday before recovering 1.8% on Thursday after RBI tightened rules to curb speculative bets. The central bank asked banks to unwind long dollar positions. After some lenders shifted these positions to clients, RBI issued another directive on Tuesday asking banks not to offer hedging services in the nondeliverable forward market.
Analysts are also concerned about RBI’s liabilities in the forward market. To defend the rupee, the central bank’s net short dollar forward position is estimated to have hit $77 billion in Feb 2026, and may have risen further in March. While this preserves immediate spot reserves, it creates a large future dollar liability. Maturing contracts can drain reserves and tighten liquidity. Despite the recovery on Thursday, dealers expect volatility to persist next week following the escalation of conflict.
