India's foreign exchange reserves continue to decline, extending its downhill journey for three months now. In the week that ended December 27, the country's foreign exchange kitty declined by $4.112 billion to $640.279 billion, data from the Reserve Bank of India (RBI) showed.

India's forex reserves have slumped twelve out of the past 13 weeks, hitting a fresh multi-month low.

The reserves had been falling ever since it touched an all-time high of $704.89 billion in September. Effectively, they are now about 10 per cent lower from the peak.

The reserves have been declining likely due to RBI intervention, aimed at aggressively preventing a sharp depreciation of the Rupee. The latest RBI data showed that India's foreign currency assets (FCA), the largest component of forex reserves, stood at $551.921 billion.

Gold reserves currently amount to $66.268 billion, according to RBI data.

Estimates suggest that India's foreign exchange reserves are sufficient to cover approximately one year or nearabout 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. Without the latest decline, the reserves would have been much higher.

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 closely monitors foreign exchange markets, intervening only to maintain orderly market conditions and curb excessive volatility in the Rupee exchange rate, without adhering to any fixed target level or range.

The RBI often intervenes by managing liquidity, including selling dollars, to prevent steep Rupee depreciation.

A decade ago, the Indian Rupee was among the most volatile currencies in Asia. Since then, it has become one of the most stable. The RBI has strategically bought dollars when the Rupee is strong and sold when it weakens, enhancing the appeal of Indian assets to investors.

Published on January 5, 2025