Here comes some good news for Indian market enthusiasts and investors. At the end of the week, news about India’s foreign exchange reserves brightened everyone’s day. India’s foreign exchange reserves grew by USD 305 million, reaching a total of USD 654.271 billion for the week ending on March 14. This increase follows the highest weekly gains seen in over three years, recorded during the previous week. This news shows a positive shift in the Indian economy, reflecting strong growth in the country’s financial standing. It indicates a stable economic environment, with reserves continuing to build up.
Foreign Exchange Reserves In The Past Few Months
Prior to that, forex reserves had slumped for about four months, recently hitting an 11-month low. Then followed the latest rollercoaster movement, with gains some weeks and declines the next.
Forex reserves started falling after touching an all-time high of USD 704.89 billion in September. They are now about 7 percent lower from their peak.
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The decline in reserves was most likely due to RBI intervention, aimed at preventing a sharp depreciation of the Rupee. The Indian Rupee is now at or near its all-time low against the US dollar.
The latest RBI data showed that India’s foreign currency assets (FCA), the largest component of forex reserves, stood at USD 557.186 billion.
Gold reserves currently amount to USD 74.391 billion, according to RBI data.
What Are Foreign Reserves?
India’s foreign reserves are a crucial part of the country’s economic stability. Estimates suggest that these reserves are enough to cover approximately 10-11 months of projected imports. So if needed, India could use its foreign exchange reserves to pay for its imports (like goods and services) for a period of 10-11 months without facing financial strain. A higher level of foreign exchange reserves provides a safety net for the country, helping it manage trade imbalances and ensuring the stability of its currency and financial system.
In 2023, India added around USD 58 billion to its foreign exchange reserves, contrasting with a cumulative decline of USD 71 billion in 2022. In 2024, the reserves rose by a little over USD 20 billion.
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 often intervenes by managing liquidity, including selling dollars, to prevent steep Rupee depreciation. The RBI strategically buys dollars when the Rupee is strong and sells when it weakens.
(With Inputs From ANI)
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