Reserves down over 10% from September peak as RBI steps in to curb Rupee depreciation
New Delhi, January 12: India’s foreign exchange reserves continued their downward trajectory, declining for the thirteenth time in the past fourteen weeks, and hitting a 10-month low.
According to the latest Reserve Bank of India (RBI) data, forex reserves dropped by USD 5.693 billion to USD 634.585 billion in the week ending January 3. The reserves have been shrinking since they reached an all-time high of USD 704.89 billion in September, marking a decline of over 10% from the peak.
Drivers of the Decline
The sustained dip is likely due to the RBI’s intervention in the forex market to manage the sharp depreciation of the Indian Rupee, which has recently hit an all-time low against the US Dollar.
- Foreign Currency Assets (FCA): The largest component of forex reserves stood at USD 545.480 billion.
- Gold Reserves: Rose by USD 824 million last week to reach USD 67.092 billion, according to the RBI.
Despite the decline, India’s forex reserves remain sufficient to cover approximately one year of projected imports.
Trends Over the Years
- In 2023, India added approximately USD 58 billion to its reserves, in contrast to a USD 71 billion decline in 2022.
- In 2024, reserves rose by over USD 20 billion, though the latest slump has capped potential gains.
What Are Forex Reserves?
Forex reserves are assets held by a nation’s central bank, primarily in reserve currencies like the US Dollar, with smaller portions in Euro, Japanese Yen, and Pound Sterling.
The RBI uses these reserves to:
- Intervene in forex markets to ensure orderly conditions.
- Manage Rupee volatility without targeting a fixed exchange rate.
RBI’s Strategic Approach
Over the past decade, the Indian Rupee has transformed from one of Asia’s most volatile currencies to one of the most stable. This shift reflects the RBI’s strategic interventions, including selling dollars to curb Rupee depreciation and buying dollars when the Rupee strengthens, thereby enhancing the appeal of Indian assets to global investors.