India’s foreign exchange reserves increased by USD 4.546 billion, reaching USD 674.664 billion, just below their all-time high, during the week ending August 16, according to data released by the Reserve Bank of India (RBI) on Friday. The previous record high was USD 674.919 billion.
The reserves have been fluctuating for some time. In 2024 alone, they have risen by approximately USD 45-50 billion cumulatively. This buffer of foreign exchange reserves helps insulate domestic economic activity from global shocks.
According to the latest data from the RBI, India’s foreign currency assets (FCA), the largest component of forex reserves, rose by USD 3.609 billion to USD 591.569 billion. Gold reserves during the week increased by USD 865 million, bringing the total to USD 60.104 billion. India’s foreign exchange reserves are now sufficient to cover more than 11 months of projected imports.
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In the calendar year 2023, the RBI added about USD 58 billion to its foreign exchange reserves. In contrast, India’s forex reserves saw a cumulative decline of USD 71 billion in 2022.
Forex reserves, or foreign exchange reserves (FX reserves), are assets held by a nation’s central bank or monetary authority. These are generally held in reserve currencies, typically the US Dollar and, to a lesser extent, the Euro, Japanese Yen, and Pound Sterling.
The decline in forex reserves last year can largely be attributed to the rising cost of imported goods in 2022. Additionally, the relative fall in forex reserves may be linked to the RBI’s periodic interventions in the market to manage the uneven depreciation of the rupee against a surging US dollar.
The RBI frequently intervenes in the market through liquidity management, including the sale of dollars, to prevent a steep depreciation of the rupee. The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions, aiming to contain excessive volatility in the exchange rate without reference to any pre-determined target level or band.
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