Number Theory: $70 billion of reserves gone in 14 weeks

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India’s foreign exchange reserves stood at $634.6 billion on the week ending January 3, the Reserve Bank of India (RBI) said in its weekly statistical supplement released on January 10. This number has fallen in every week except one since the week ending October 4, 2024, the data shows -- slipping from an all-time high $704.9 billion in the week ending September 27, 2024.

Representational image.

What do these numbers mean? How big or small is the ongoing depletion in India’s foreign reserves compared to the past? How significant is the current erosion in the larger macroeconomic context? Here are three charts which try to answer this question.

$70 billion of reserves gone in 14 weeks

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  As of now, this is not the longest spell of continuous weekly decline in forex reserves

  The longest streak of weekly forex reserve declines lasted 10 weeks, from March 11, 2022 to May 13, 2022. In comparison, the decline between October 4, 2024 and November 22, 2024 was the fourth longest. The week ending November 29 saw an increase in India’s forex reserves, which is why the subsequent weeks of decline were not grouped with the earlier weeks of consecutive reductions in the above calculation. To be sure, if one were to relax the criteria of calculation to include periods which saw one week of rise in reserves between continuous fall, the last three and a quarter months would be the fifth longest spell of decline in forex reserves.
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  But the absolute fall in value of forex reserves in this spell is already one of the highest

  Although it is not the longest spell yet, the ongoing spell has already seen the second highest fall by value of forex reserves at $70.3 billion in just 14 weeks. For context, the highest drop in forex reserves during such a spell was the decline by $71.4 billion recorded during the period from the week ending June 3, 2022 to November 4, 2022 — a total of 23 weeks.
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  However, even this does not seem to be the case when seen in relation to existing reserves

  An analysis of the change in total forex from before the spell and the end of the spell reveals that the sharpest decline occurred between September 26, 2008 and December 12, 2008, when forex reserves fell by as much as 15.8%. This period coincided with the global financial crisis. The second-largest percentage decline, at 11.9%, was recorded between the week ending June 3, 2022 and November 11, 2022—roughly coinciding with a series of steep interest rate hikes by the US Federal Reserve. Notably, the latest streak ranks as the third most significant, with total reserves declining by nearly 9.97% since the week ending October 4, 2024. According to RBI, India had adequate reserves to cover 11 months of imports, as of November 22, 2024, a marginal decline from 11.3 months of cover recorded in March 2024.
• How much has the rupee fallen by in such episodes?

  It is no coincidence that the current spell of declining reserves is happening as the rupee has weakened to its all-time low against the dollar—it closed at a historic low of 85.97 against the US dollar on Friday. Changes in foreign currency assets stem from RBI’s forex market interventions and fluctuations in the value of foreign assets in reserves. RBI acts on both sides of the market to manage excessive rupee volatility. To gauge how much the rupee typically falls during such episodes, HT calculated the implied exchange rate using the dollar and rupee values of total reserves. Historically, during periods of continuous reserve decline lasting at least two months, the rupee has fallen by an average of 2.8% against the dollar. The steepest drop occurred during the spell between April 20, and September 7, 2018, when it plunged 10.13% over 21 weeks. In the current 14-week spell, the rupee has fallen by 2.5%.