India’s foreign exchange reserves have crossed an important threshold ~ not because their absolute level is inadequate, but because the speed at which they are being drawn down deserves attention. The reserves fell by $18.3 billion in the week ended September 25, taking the total to $747.6 billion. That followed a decline of $14.88 billion in the preceding week. Two consecutive weeks of such large reductions cannot be dismissed as an ordinary fluctuation, particularly when they coincide with sustained pressure on the rupee.

The Reserve Bank of India has accumulated a formidable reserve cushion over the years precisely so that India does not become hostage to sudden movements in global capital and commodity markets. It is therefore entirely legitimate for the RBI to use that cushion to prevent disorderly movements in the currency. The objective of intervention, however, cannot be to defend a particular exchange-rate level indefinitely. That distinction is becoming important. The rupee has weakened amid higher crude-oil prices, elevated US Treasury yields and continuing turmoil in West Asia.

India, as a major importer of crude, is especially exposed when oil prices rise. More expensive energy increases the country’s dollar........

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