India's forex reserves decline for third consecutive month, 12th slump in past 13 weeks

NEW DELHI: India's foreign exchange reserves have been on a consistent decline for the past three months. As per the latest data from the Reserve Bank of India (RBI), the country's forex reserves fell by $ 4.112 billion in the week ending December 27, reaching $ 640.279 billion.

This marks the twelfth decline in the last 13 weeks, pushing the reserves to a new multi-month low.

The reserves peaked at an all-time high of $ 704.89 billion in September, but since then, they have dropped by approximately 10 per cent. The decline is largely attributed to the RBI's intervention in the currency markets, where it has been actively buying and selling dollars to prevent Rupee's sharp depreciation.

According to the RBI's latest figures, India's foreign currency assets (FCA), which make up the largest portion of the reserves, now stand at $ 551.921 billion. The country's gold reserves are valued at $ 66.268 billion.

Despite the recent slide, India's foreign exchange reserves are still considered adequate, with estimates suggesting they could cover nearly a year’s worth of projected imports. In 2023, India added around $ 58 billion to its reserves, contrasting with a cumulative decline of $ 71 billion in 2022. The reserves had also risen by a little over $ 20 billion in 2024, and had it not been for the recent decline, they would have been even higher.

Foreign exchange reserves, or FX reserves, are assets held by a nation's central bank, primarily in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling. The RBI monitors foreign exchange markets and intervenes to maintain orderly market conditions and curb excessive volatility in the Rupee’s exchange rate. Importantly, the RBI does not aim for a fixed target level or range but focuses on ensuring stability.

The RBI typically intervenes by managing liquidity, including selling dollars to prevent steep depreciation of the Rupee. This strategy has been part of the RBI’s broader effort to stabilise the currency market.

A decade ago, Rupee was one of the most volatile currencies in Asia. However, with RBI’s carefully planned management, Rupee has emerged as one of the most stable currencies, with the central bank strategically buying dollars when the Rupee is strong and selling when it weakens, thus boosting the appeal of Indian assets to investors.

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