The contraction in total reserves was driven by a fall in gold reserves, which dropped $13.49 billion to $117.19 billion during the reported week.

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Forex Reserves Fall Sharply

India’s foreign exchange (forex) reserves fell by $11.41 billion to $698.35 billion during the week ended March 20, the latest data from the Reserve Bank of India showed.

Over the past three weeks, forex reserves have declined by $30.14 billion.

Gold Reserves Drag Down Total

The contraction in total reserves was driven by a fall in gold reserves, which dropped $13.49 billion to $117.19 billion during the reported week.

Meanwhile, foreign currency assets rose by $2.13 billion to $557.69 billion.

Foreign currency assets, expressed in dollar terms, reflect the impact of appreciation or depreciation in non-US currencies — such as the euro, pound sterling, and yen — held as part of the forex reserves.

RBI Forward Book Pressure

Economists said that while reserve levels remain comfortable, underlying pressures are building due to the RBI’s large net short dollar position in the rupee forward market.

“Current forex reserves provide import cover for 11 months.

“However, after adjusting for forward positions, it is 9.4 months on forex less short positions,” said Madhavi Arora, chief economist at Emkay Global.

Until January, the dollar deficit in the forward book was $67.8 billion.

Market participants expect the deficit to have ballooned to about $100 billion by March.

Rupee Depreciation Worsens Outlook

“With the current forex reserves, the RBI retains the ability to defend the rupee, but such defence can no longer be indiscriminate,” said Dhiraj Nim, Fx strategist and economist at ANZ.

The rupee has depreciated by over 4 per cent in March against the dollar.

In the current financial year (2025-26/FY26), the Indian unit has fallen 9.85 per cent, the worst decline since 2011-2012.

“A large forex forward book puts pressure on reserves, while foreign currency assets have eased.

“Valuation effects from the gold selloff are also negative.

“This means the central bank will have to be selective in deploying forex reserves, primarily to smooth volatility rather than defend any particular level, as high oil prices pose a macroeconomic risk, not just a market risk,” Nim added.

Oil Prices, West Asia Risk

Special drawing rights were down $65 million to $18.63 billion during the reported week, while India’s reserve position with the International Monetary Fund rose by $19 million to $4.83 billion.

IDFC First Bank said in a report that if the current West Asia crisis persists, it will pressure forex reserve adequacy due to the RBI’s dollar sales and revaluation losses.

“The drain on Fx reserves will come from RBI dollar selling as well as revaluation losses.

The latter occur during periods of dollar strength, rising US treasury yields, and falling gold prices.

Historically, during risk-off periods, revaluation losses have reached around $20 billion per year,” the report said.

‘The import cover (spot plus forward book) is estimated at 7.2 months as of March 2027,’ the report added.

Economists observed that another factor affecting forex reserve adequacy is the size of imports.

At crude oil prices of $90 per barrel, India’s import bill is projected at $911 billion in 2026-2027 (FY27), up from $814 billion in FY26.

If the crisis persists, the FY27 balance of payments deficit could reach $40 billion, implying that forex reserves at the end of March 2027 could be $636 billion.

Feature Presentation: Ashish Narsale/Rediff