India’s foreign exchange (forex) reserves fell for the sixth consecutive week, reaching $675.65 billion as of November 8, according to data released by the Reserve Bank of India (RBI) on November 15. The reserves declined by $6.477 billion during the reporting week, marking a significant drop from the record high of $704.89 billion in September.
Foreign Currency Assets Experience Sharp Decline
The main component of India’s forex reserves, foreign currency assets (FCA), decreased by $4.467 billion, bringing the total to $585.383 billion as of November 8. In the previous week, the forex reserves had already seen a decline of $2.675 billion, reaching $682.13 billion.
India’s reserve position with the International Monetary Fund (IMF) fell by $14 million to $4.298 billion during the week. Special Drawing Rights (SDRs) also registered a decline of $60 million, totaling $18.159 billion. Meanwhile, gold reserves dropped by $1.936 billion, settling at $67.814 billion.
India Remains Fourth Globally in Forex Reserves
Despite the recent declines, India maintains its position as the fourth-largest holder of foreign exchange reserves globally, following China, Japan, and Switzerland. The reserves had previously reached an all-time high of $704.885 billion before the current downturn, attributed largely to RBI’s interventions to stabilize the Indian Rupee.
The RBI’s interventions, including selling dollars, are aimed at curbing sharp depreciation of the Rupee. The central bank does not adhere to a specific target level but seeks to maintain orderly market conditions. Strategic buying of dollars when the Rupee strengthens and selling during periods of weakness have contributed to the stability of the Indian currency, which was previously among the most volatile in Asia.
Estimates indicate that India’s current forex reserves are sufficient to cover about one year of projected imports, providing a robust buffer against global economic shocks. In 2023, India’s reserves increased by approximately $58 billion, contrasting with a decline of $71 billion in 2022.
The RBI’s strategy involves active management of foreign exchange reserves, primarily held in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling. The central bank monitors the forex market closely and intervenes to prevent excessive volatility in the exchange rate of the Indian Rupee.
A decade ago, the Indian Rupee was one of Asia’s most volatile currencies. However, due to strategic interventions by the RBI, it has become one of the most stable, enhancing the attractiveness of Indian assets to investors and contributing to overall economic stability.
