Rupee weakness and pressure on Forex

India’s foreign exchange reserves are facing a continuous decline. The weakness of the rupee is directly impacting the country’s forex reserves. The Reserve Bank of India (RBI) has to spend huge amounts of dollars to stop the fall of the rupee.

Foreign exchange reserves declined by $ 8.48 billion to $ 644.39 billion in the week ending December 20, 2024. Earlier, it was at the level of $ 652.87 billion, which was the lowest level in six months.

Effect of rupee weakness

RBI said in its press release that the main reason for this decline is the sale of dollars in the currency market to keep the rupee stable.

• Rupee against dollar:
  • On December 27, the rupee weakened by 53 paise to reach a record low of 85.79.
  • This is the biggest one-day fall of the rupee since February 2023.
• According to experts, the situation of the rupee may worsen further, especially in 2025.
• There is a possibility of uncertainty increasing due to the tariff policies and inflation-increasing policies of the new US President Donald Trump.

RBI intervention

RBI usually sells dollars from its reserves when there is a need to curb volatility in the rupee.

• This step has been taken to support the rupee, but it has increased the pressure on foreign exchange reserves.
• Experts say that efforts will continue to keep the rupee stable amid the strong dollar.

India’s foreign exchange reserves: declining figures

Data till December 20, 2024 shows that India’s foreign exchange reserves declined as follows:

1. Gold reserves:
   • A decline of $2.33 billion to $65.73 billion.
2. SDR (Special Drawing Rights):
   • Decrease of $112 million to $17.88 billion.
3. Reserves with IMF:
   • Decrease of $23 million to $4.22 billion.

previous high

• Foreign exchange reserves were at an all-time high of $704.88 billion in September 2024.
• But since then the decline has continued.

Challenges for the rupee and foreign exchange reserves

1. Strengthening of Dollar:
   • The strength of the US economy and increasing demand for dollars is affecting the forex reserves.
2. Global Economic Uncertainty:
   • Due to the Russia-Ukraine war and tensions in West Asia, pressure on other currencies has increased against the dollar.
3. Domestic Challenges:
   • The weak rupee and rising import costs have worsened the situation.

future prospects

Economists believe that:

• RBI will have to intervene more to overcome the weakness of Rupee.
• US tariff policies and dollar strength may further impact foreign exchange reserves in 2025.