India's foreign exchange reserves decline for fourth week after stellar run

New Delhi: India's foreign exchange reserves fell for the fourth consecutive week after reaching an all-time high last month.

In the week ending October 25, the forex reserves declined by USD 3.463 billion to USD 684.805 billion, according to data released by the Reserve Bank of India (RBI) on Friday.

In the three preceding weeks, reserves dropped by USD 3.7 billion, USD 10.7 billion, and USD 2.16 billion, respectively, the data showed.

Reserves had reached a record high of USD 704.885 billion before this recent decline, likely due to RBI intervention aimed at preventing a sharp depreciation of the Rupee.

A substantial buffer of foreign exchange reserves helps shield domestic economic activity from global shocks.

The latest RBI data shows that India's foreign currency assets (FCA), the largest component of forex reserves, stand at USD 593.751 billion.

Gold reserves currently amount to USD 68.527 billion, according to Friday's data.

Estimates suggest that India's foreign exchange reserves are now sufficient to cover approximately one year of projected imports.

In 2023, India added around USD 58 billion to its foreign exchange reserves. This contrasts with a cumulative decline of USD 71 billion in 2022.

Foreign exchange reserves, or FX reserves, are assets held by a nation's central bank or monetary authority.

These reserves are generally held in reserve currencies, mainly the US Dollar, and to a lesser extent, the Euro, Japanese Yen, and Pound Sterling.

The RBI monitors the foreign exchange markets closely, intervening only to maintain orderly market conditions and to 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. A stable Rupee enhances the appeal of Indian assets to investors, promising better performance with greater predictability.