India's forex reserves fall $18.3 billion as RBI defends rupee

India's foreign exchange reserves fell by a record $18.34 billion to $747.56 billion in the week ended September 25, marking the biggest weekly decline on record according to data compiled by Bloomberg. The sharp drop reflects the Reserve Bank of India's aggressive intervention to support the rupee amid mounting external pressures on the domestic currency.

The RBI has deployed multiple tools to defend the rupee, including selling dollars directly and conducting sell-buy swaps in the foreign exchange market. These swaps typically involve the RBI selling dollars to banks for rupees while agreeing to repurchase the currency later, operations that directly deplete the reserve stockpile. Additionally, a decline in gold prices during the week contributed to some revaluation of reserves. The rupee has emerged as an underperformer among Asian currencies this year, weighed down by surging oil prices and sustained foreign outflows from Indian markets. On Thursday, the rupee hit its lowest level in over two months, falling to 96.3212 against the dollar, as markets remained closed on Friday for a local holiday.