India’s forex reserves decline $5.2 billion to come off one-month high

India’s foreign exchange reserves declined by USD 5.240 billion to USD 617.230 billion in the week that ended on February 9, coming off a month high it hit the prior week, latest data released by the Reserve Bank of India showed.

During the week that ended on February 9, India’s foreign currency assets (FCA), the biggest component of the forex reserves, declined by USD 4.807 billion to USD 546.524 billion, the central bank’s weekly statistical data showed.

Gold reserves during the week declined by USD 350 million to USD 47.739 billion.

In the calendar year 2023, the RBI added about USD 58 billion to its foreign exchange kitty. In 2022, India’s forex kitty slumped by USD 71 billion cumulatively.

Forex reserves or foreign exchange reserves (FX reserves), are assets that are held by a nation’s central bank or monetary authority.

It is generally held in reserve currencies, usually the US Dollar and, to a lesser degree, the Euro, Japanese Yen, and Pound Sterling.

In October 2021, the country’s foreign exchange reserves touched an all-time high of about USD 645 billion. Much of the decline, though marginal on a cumulative basis, since then can be attributed to a rise in the cost of imported goods in 2022.

Also, the relative fall in forex reserves could be linked to the RBI’s intervention, from time to time, in the market to defend the uneven depreciation in the rupee against a surging US dollar.

Typically, the RBI, from time to time, intervenes in the market through liquidity management, including through the selling of dollars, to prevent a steep depreciation in the rupee.

The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate, without reference to any pre-determined target level or band.