The decline marks the 11th drop in 12 weeks, with reserves falling to a multi-month low of $644.39 billion.
New Delhi, December 28: India’s foreign exchange (forex) reserves witnessed a sharp decline of USD 8.478 billion, dropping to USD 644.391 billion in the week ending December 20, according to data released by the Reserve Bank of India (RBI) on Friday.
This marks the 11th decline in the past 12 weeks, with reserves falling to a multi-month low after peaking at an all-time high of USD 704.89 billion in September 2023.
Reason Behind the Decline
The consistent drop in reserves is attributed to the RBI’s intervention in the forex market to prevent sharp depreciation of the Indian Rupee amid global economic uncertainties. The central bank often sells US dollars to maintain exchange rate stability and prevent excessive volatility.
Breakdown of Reserves
- Foreign Currency Assets (FCA): USD 556.562 billion
- Gold Reserves: USD 65.726 billion
India’s forex reserves remain sufficient to cover approximately one year of projected imports, acting as a buffer against external economic shocks.
Trends Over the Years
- In 2023, India added approximately USD 58 billion to its forex reserves, a sharp contrast to the USD 71 billion decline in 2022.
- In 2024, reserves saw an increase of over USD 20 billion before the recent series of declines.
Strategic Role of Forex Reserves
Forex reserves are vital for stabilizing the Rupee exchange rate and ensuring economic resilience against global financial volatility. The RBI’s approach includes:
- Buying US dollars when the Rupee strengthens.
- Selling US dollars when the Rupee faces downward pressure.
This strategy has played a critical role in transforming the Indian Rupee from one of the most volatile currencies in Asia to one of the most stable in the past decade.
The RBI remains committed to ensuring orderly market conditions and curbing excessive volatility without adhering to any fixed exchange rate target.
As global economic uncertainties persist, the central bank’s forex management strategy will continue to play a pivotal role in maintaining India’s economic stability and investor confidence.
