India’s Foreign Exchange Reserves extended their gains for the second consecutive week, after having slumped for nearly four months. In the week that ended on January 31, the Forex kitty rose USD 1.05 billion to USD 630.607 billion, Reserve Bank of India data showed. Barring the latest two weeks, the country’s Forex reserves had fallen in 15 of the past 16 weeks, hitting an about 11-month low.
The Forex reserves started falling since they touched an all-time high of USD 704.89 billion in September. They are now about 10 percent lower from its 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 USD 537.684 billion.
Gold reserves currently amount to USD 70.893 billion, according to RBI data. Estimates suggest that India’s Foreign Exchange Reserves are sufficient to cover approximately 11 months of projected imports.
In 2023, India added around USD 58 billion to its Foreign Exchange Reserves, contrasting with a cumulative decline of USD 71 billion in 2022. In 2024, the reserves rose by a little over USD 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 has strategically bought dollars when the Rupee is strong and sold when it weakens.
