India’s foreign exchange reserves recorded a sharp weekly drop as the Reserve Bank of India (RBI) sold dollars to support a weakening rupee, analysts said.

The holdings in the week ended January 2 fell by $9.8 billion to $686.8 billion. During the week, the rupee fell 0.4 per cent against the greenback due to foreign fund outflows and delays in a trade deal between India and the US.

“The fall in reserves is mostly on account of dollar selling by the RBI, and to a smaller extent, the revaluation of reserves as US yields rose and the dollar strengthened,” Gaura Sen Gupta, chief economist at IDFC First Bank told Bloomberg.

The rupee fell by over 5 per cent last year, which made it the worst performing Asian currency as high US tariffs on India widened India’s trade deficit and spurred capital outflows.

The RBI’s ability to intervene in the currency market would be constrained not only by the level of reserves, but also by its large short outstanding forward dollar sales, which limit its ability to manage banking liquidity, Sen Gupta observed.