India’s foreign exchange (forex) reserves started to rise again after having slumped for an eighth consecutive week, in the process hitting a multi-month low. In the week that ended November 29, the foreign exchange kitty rose $1.510 billion to $658.091 billion, data from the Reserve Bank of India (RBI) showed earlier this week.
The reserves had been falling ever since it touched all-time high of $704.89 billion in September. The reserves have been declining likely due to RBI intervention aimed at preventing a sharp depreciation of the Rupee. A substantial foreign exchange reserve buffer helps shield domestic economic activity from global shocks.
The latest RBI data showed that India’s foreign currency assets (FCA), the largest component of forex reserves, stood at $568.852billion. Gold reserves currently amount to $66.979 billion, according to RBI data. Estimates suggest that India’s foreign exchange reserves are now sufficient to cover approximately one year of projected imports. In 2023, India added around $58 billion to its foreign exchange reserves, contrasting with a cumulative decline of $71 billion in 2022.
Foreign exchange reserves, or FX reserves, are assets held by a nation’s central bank or monetary authority, primarily in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling.
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The RBI closely monitors foreign exchange markets, intervening only to maintain orderly market conditions and curb excessive volatility in the Rupee exchange rate, without adhering to any fixed target level or range. The RBI often intervenes by managing liquidity, including selling dollars, to prevent steep Rupee depreciation. A decade ago, the Indian Rupee was among the most volatile currencies in Asia. Since then, it has become one of the most stable. The RBI has strategically bought dollars when the Rupee is strong and sold when it weakens, enhancing the appeal of Indian assets to investors.
