India’s forex reserves dip by $5.89 billion after rising for seven weeks in row

Forex reserves witnessed a significant decline, plummeting by $5.89 billion to reach $617.3 billion for the week ending January 5, as revealed in the latest weekly data from the Reserve Bank.

This downturn follows four consecutive weeks of growth. Throughout this fiscal year, the reserves have demonstrated an overall increase of $55.72 billion, as reported by the Reserve Bank of India (RBI).

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In the preceding week concluding on December 29, reserves experienced a noteworthy surge of $2.759 billion, reaching a peak of $623.2 billion, marking the highest point thus far in the fiscal year.

The week before that also saw an increase, with reserves climbing by $4.471 billion to $620.441 billion. Notably, in October 2021, the forex reserves had achieved an unprecedented milestone, reaching an all-time high of $645 billion.

The recent decline in reserves can be attributed to the central bank’s intervention in defending the rupee, responding to pressures primarily stemming from global developments since the previous year.

The foreign currency assets, the largest component of the reserves, experienced a decrease of $4.96 billion, settling at $546.65 billion.

Also, gold reserves saw a decline of USD 839 million, reaching $47.48 billion, and Special Drawing Rights (SDRs) decreased by USD 67 million to $18.29 billion, according to the RBI. Additionally, the country’s reserve position with the IMF declined by $26 million, concluding the reporting week at $48.66 billion.

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The Reserve Bank of India (RBI) engages in market intervention via liquidity management, which may involve the sale of dollars. The objective is to avert a significant decline in the value of the rupee.

The RBI diligently observes the foreign exchange markets and intervenes strategically to uphold orderly market conditions, curbing undue fluctuations in the exchange rate. This intervention is conducted without adhering to any pre-established target level or range.