India's Forex Reserves Experience Ongoing Decline

According to data released by the Reserve Bank of India (RBI), the foreign exchange reserves decreased by USD 1.988 billion to USD 652.869 billion in the week ending December 13.

India's foreign exchange reserves have declined in ten of the last eleven weeks, reaching a new multi-month low. The reserves have been decreasing since hitting a record high of USD 704.89 billion in September.

The reserves have likely been decreasing because of the RBI's efforts to aggressively stop a significant drop in the Rupee's value. A considerable foreign exchange reserve also aids in protecting domestic economic activities from international disruptions.

RBI Data

According to recent data from the RBI, India's foreign currency assets (FCA), which form the largest part of its forex reserves, are valued at USD 562.576 billion. Additionally, gold reserves are currently at USD 68.056 billion.

Projections indicate that India's foreign exchange reserves can cover about a year's worth of anticipated imports. In 2023, India increased its foreign exchange reserves by roughly USD 58 billion, in contrast to a total decrease of USD 71 billion in 2022. Foreign exchange reserves, or FX reserves, are assets maintained by a country's central bank or monetary authority, mainly in reserve currencies like the US Dollar, with smaller amounts in the Euro, Japanese Yen, and Pound Sterling.

RBI Keeps Close Watch on Foreign Exchange Markets

The RBI keeps a close watch on foreign exchange markets, stepping in only to ensure orderly market conditions and limit extreme fluctuations in the Rupee exchange rate, without following any specific target level or range. The RBI frequently intervenes by managing liquidity, such as selling dollars, to avoid sharp depreciation of the Rupee.

Ten years ago, the Indian Rupee was one of the most unstable currencies in Asia. However, it has since transformed into one of the most stable. The Reserve Bank of India has tactically purchased dollars when the Rupee is strong and sold them when it weakens, thereby increasing the attractiveness of Indian assets to investors.