India's Forex Reserves Fall for Sixth Straight Week, Hit $675.65 Billion

Forex Reserves: India’s foreign exchange (forex) reserves declined for the sixth consecutive week, reaching a near three-month low of $675.65 billion as of November 8, according to data released by the Reserve Bank of India (RBI) on Friday. The reserves dropped by $6.477 billion during the week, marking a total decline of $29.2 billion from the all-time high of $704.89 billion recorded in September.  

The largest component of the reserves, foreign currency assets (FCA), fell by $4.467 billion to $585.383 billion. Gold reserves also dropped by $1.936 billion to $67.814 billion, while Special Drawing Rights (SDRs) decreased by $60 million to $18.159 billion. India’s reserve position with the International Monetary Fund (IMF) declined by $14 million to $4.298 billion.  

Despite the recent decline, India remains the world’s fourth-largest holder of forex reserves, trailing behind China, Japan, and Switzerland.  

Factors Behind the Decline

The decline in reserves is attributed to RBI interventions aimed at curbing excessive volatility in the Rupee exchange rate and preventing sharp depreciation. The central bank often manages market liquidity by buying or selling dollars, without targeting any specific exchange rate level.  

India’s forex reserves peaked at $704.885 billion earlier this year. However, substantial buffers like these are critical for shielding the domestic economy from global shocks. Current reserves are estimated to cover roughly one year of projected imports.  

Forex Trends in 2023

In 2023, India added around $58 billion to its forex reserves, recovering from a $71 billion cumulative decline in 2022.  

A Decade of Stability

Over the past decade, the Indian Rupee has evolved from being one of Asia’s most volatile currencies to one of its most stable. The RBI’s strategic dollar buying during periods of Rupee strength and selling during weaknesses has helped stabilise the currency while enhancing the appeal of Indian assets to investors.  

Forex reserves are held by central banks primarily in reserve currencies like the US Dollar, with smaller allocations in the Euro, Japanese Yen, and Pound Sterling. Their management remains crucial to maintaining orderly market conditions and safeguarding economic stability.