India’s foreign exchange reserves have once again reached an all-time high. For the week ending August 2, the reserves increased by USD 7.533 billion to USD 674.919 billion, setting a new record, according to RBI data released on Friday. The previous record was USD 670.857 billion.
The reserves have been fluctuating over time but have generally been on the rise. So far in 2024, they have increased by approximately USD 45-50 billion cumulatively. This buffer of foreign exchange reserves helps insulate domestic economic activity from global spillovers.
The latest data from the Reserve Bank of India (RBI) shows that India’s foreign currency assets (FCA), the largest component of the forex reserves, rose by USD 5.162 billion to USD 592.039 billion. Gold reserves increased by USD 2.404 billion to USD 60.099 billion.
India’s foreign exchange reserves are now sufficient to cover over 11 months of projected imports. In calendar year 2023, the RBI added about USD 58 billion to its foreign exchange reserves. In contrast, the reserves had decreased by USD 71 billion cumulatively in 2022.
Forex reserves, or foreign exchange reserves (FX reserves), are assets held by a nation’s central bank or monetary authority. They are typically held in reserve currencies such as the US Dollar, and to a lesser extent, the Euro, Japanese Yen, and Pound Sterling.
The decline in reserves in 2022 was largely due to a rise in the cost of imported goods. Additionally, the relative fall in reserves can be attributed to the RBI’s interventions in the market to counteract the uneven depreciation of the rupee against a surging US dollar. The RBI intervenes in the foreign exchange market through liquidity management and the sale of dollars to prevent sharp depreciation of the rupee.
The RBI monitors foreign exchange markets closely and intervenes to maintain orderly market conditions and contain excessive volatility in the exchange rate, without targeting any specific level or band.
(With ANI Inputs)
Also Read: Banking Overhaul Ahead: Nirmala Sitharaman To Present Key Amendments In Lok Sabha
