India’s foreign exchange reserves slumped in the week that ended on February 28, as per the latest RBI data.
In the week under consideration, the foreign exchange reserves declined by $1.781 billion to $638.698 billion. Forex reserves had slumped for about four months, recently hitting an 11-month low.
Then followed the latest rollercoaster movement, with gains some weeks and declines the next. Forex reserves started falling after touching an all-time high of $704.89 billion in September. They are now about 10 percent lower from their peak. The decline in reserves is most likely due to RBI intervention, aimed at preventing a sharp depreciation of the rupee.
The Indian rupee is now at or near its all-time low against the US dollar. The latest RBI data showed that India’s foreign currency assets (FCA), the largest component of forex reserves, stood at $543.350 billion.Gold reserves currently amount to $73.272 billion, according to RBI data.
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Estimates suggest that India’s foreign exchange reserves are sufficient to cover approximately 10-11 months 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. In 2024, the reserves rose by a little over $20 billion.
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.The RBI often intervenes by managing liquidity, including selling dollars, to prevent steep rupee depreciation. The RBI strategically buys dollars when the rupee is strong and sells when it weakens.