India’s foreign exchange reserves (forex) came down by $9.646 billion to $622.275 billion in the week ended March 11, 2022. The reduction marks the sharpest reduction in nearly two years as the Reserve Bank of India (RBI) sold dollars to arrest the slide of rupee.

According to central bank data, foreign currency reserves, which forms the biggest chunk of India’s reserves, declined by $11.108 billion to $554.359 billion during the week. Prior to this India’s foreign exchange reserves had slipped by $11.9 billion during the week ended March 20, 2020. The country’s forex reserves had touched an all-time high of $642.453 billion in the week ended September 3, 2021.

The decline coincides with Indian Rupee slipping to an all-time against the US dollar. On March 7, 2022, INR ebbed to 77.02, its lowest against the greenback owing to rising crude oil prices and fund outflows. Analysts believe that RBI may have intervened by selling as much as $1 billion-a-day to prevent further slide in the Indian currency.However, the rupee recovered slightly buoyed by a rise in the stock markets. Investors shied away from riskier investments due to uncertainty surrounding the Ukraine conflict and stubbornly high inflation. In the meantime, the dollar index, which measures the strength of the greenback against a basket of six currencies, was down 0.39% at 98.79.

The Indian currency depreciated amid an escalation in geopolitical tensions in the second half of February and a subsequent spike in crude oil levels. Elevated oil prices are likely to weigh down India’s already tight trade deficit situation. As per HSBC economists, every USD10/bbl increase in oil prices will widen India’s current account deficit by 0.4% of GDP.

With a decline in forex reserves, the value of India’s Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) declined by $53 million to $18.928 billion. India’s reserve position in the IMF dropped by $7 million to $5.146 billion during the week ended March 11, showed RBI data.