India's foreign exchange reserves see $3.7 billion dip after scaling all-time high

Mumbai: India's foreign exchange reserves dipped $3.7 billion to $701.18 billion as of October 4 after scaling all-time high, according to data released by Reserve Bank of India on Friday.

In the week ending on September 27, the forex reserves kitty rose USD 12.588 billion to USD 704.885 billion.

The reserves fell after having risen by nearly USD 35 billion in the last seven weeks.
This buffer of foreign exchange reserves helps insulate domestic economic activity from global shocks.

According to the latest data from the apex bank, India's foreign currency assets (FCA), the largest component of forex reserves, were at USD 612.643 billion.

The gold reserves are worth USD 65.756 billion, as per Friday's data.

As per estimates, India's foreign exchange reserves are now sufficient to cover over a year of projected imports.

In the calendar year 2023, India added about USD 58 billion to its foreign exchange reserves.

In contrast, India's forex reserves saw a cumulative decline of USD 71 billion in 2022. Forex reserves, or foreign exchange reserves (FX reserves), are assets held by a nation's central bank or monetary authority.

Foreign exchange reserves are generally held in reserve currencies, typically the US Dollar and, to a lesser extent, the Euro, Japanese Yen, and Pound Sterling.

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

The RBI frequently intervenes in the market through liquidity management, including the sale of dollars, to prevent a steep depreciation of the rupee.

The RBI has been strategically buying dollars when the rupee is strong and selling when it is weak.

A less volatile rupee makes Indian assets more attractive to investors, as they can expect better performance with more predictability.