MUMBAI: India’s foreign exchange reserves fell for the fifth consecutive week to a 10-month low of $634.59 billion as of Jan. 3, data from the Reserve Bank of India (RBI) showed on Friday.

The reserves declined by $5.7 billion in the reported week, after falling by a cumulative $17.8 billion in the prior three weeks. Reserves have fallen by about $70 billion from their all-time high of $704.89 billion in late September.

The rupee has faced persistent headwinds over recent weeks, as the dollar has strengthened and capital flows have slowed following a slowdown in India’s economic growth.

The central bank has routinely intervened in the foreign exchange market via state-run banks to limit the rupee’s losses.

The magnitude of the RBI’s forex intervention since October has been “substantial” and is resulting in “adverse effects”, such as tighter banking system liquidity and higher short-term rates at a time of weakening growth, Nomura analysts said.

India’s FX reserves drop to eight-month low amid rupee pressure

This, in turn, is leading to more capital outflows and possibly “dollar hoarding” in anticipation of further depreciation in the rupee, Nomura said.

Changes in foreign currency assets are caused by the central bank’s intervention in the forex market as well as the appreciation or depreciation of foreign assets held in the reserves.

The RBI intervenes on both sides of the forex market to curb undue volatility in the rupee.

The rupee settled at 85.9650 to the dollar on Friday, after hitting a record low of 85.97 earlier in the session. The domestic unit fell 0.2% this week, its tenth consecutive weekly fall.

The forex reserves also include India’s reserve tranche position in the International Monetary Fund.