India’s foreign exchange reserves increased again after several weeks of decline

from india foreign currency (forex) reserves It began rising again after falling for the eighth consecutive week, hitting a multi-month low in the process. In the week ended November 29, foreign exchange reserves rose by $1.510 billion to $658.091 billion, Reserve Bank of India (RBI) data showed earlier this week.

The reserves had been falling since hitting an all-time high of $704.89 billion in September. The decline in reserves is likely to be due to RBI intervention aimed at arresting the steep fall of the rupee. Adequate foreign exchange reserve buffer helps to insulate domestic economic activity from global shocks.

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Latest RBI data showed that India’s foreign exchange assets (FCA), the largest component of foreign exchange reserves, stood at $568.852 billion. According to RBI data, gold reserves currently stand at $66.979 billion. Estimates suggest that India’s foreign exchange reserves are now sufficient to cover about one year’s estimated imports. In 2023, India is projected to add about $58 billion to its foreign exchange reserves, compared to a cumulative drawdown of $71 billion in 2022.

Foreign exchange reserves, or FX reserves, are assets held by a country’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.

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The RBI closely monitors the foreign exchange markets, without adhering to any fixed target level or range, intervening only to maintain orderly market conditions and prevent excessive volatility in the exchange rate of the rupee. The RBI often intervenes by managing liquidity, including selling dollars, to prevent a sharp decline in the rupee. A decade ago, the Indian rupee was one of 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 strengthened and sold it when it weakened, thereby increasing the attractiveness of Indian assets for investors.