India’s foreign exchange reserves saw a decline in the week ending February 28, according to the latest data from the RBI. The reserves fell by $1.781 billion to $638.698 billion in the specified week. This downward trend in forex reserves has been ongoing for about four months now, with the reserves hitting an 11-month low recently.
Following the peak of $704.89 billion in September, the forex reserves have been fluctuating, experiencing gains some weeks and declines in others. The decline in reserves is believed to be a result of RBI intervention to prevent a drastic depreciation of the Indian rupee, which is currently at or near its all-time low against the US dollar.
The latest RBI data indicates that India’s foreign currency assets (FCA), the largest component of forex reserves, stood at $543.350 billion, while gold reserves amounted to $73.272 billion. It is estimated that India’s forex reserves are adequate to cover around 10-11 months of projected imports.
In 2023, India saw an increase of approximately $58 billion in its foreign exchange reserves, which contrasts with a cumulative decline of $71 billion in 2022. The reserves rose by a little over $20 billion in 2024. Foreign exchange reserves are assets held by a country’s central bank, primarily in reserve currencies like the US dollar.
The RBI often intervenes to manage liquidity, including selling dollars to prevent steep depreciation of the rupee. The central bank strategically buys dollars when the rupee is strong and sells them when it weakens. The rollercoaster movement of forex reserves reflects the ongoing efforts to stabilize the Indian currency and protect the country’s financial stability.
