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Published: Feb 23, 2023
Updated: Feb 23, 2023

India's Foreign Exchange Reserves Decline Steeply ; sharpest weekly fall in 11 months

India's foreign exchange reserves have experienced the sharpest decline in over 11 months, according to recent data released by the Reserve Bank of India. The reserves declined by USD 8.319 billion, falling to USD 566.948 billion in the week ending on February 10. This reduction in reserves can be attributed to the RBI's intervention and the increase in the cost of imported goods in recent times.

Foreign Currency Assets Witness Decline

India's foreign currency assets, which form the largest component of the forex reserves, decreased by USD 7.108 billion to USD 500.587 billion, according to the RBI's latest data. Additionally, gold reserves fell by USD 919 million to USD 42.862 billion.

In October 2021, the country's forex reserves had touched an all-time high of about USD 645 billion. However, the reserves had been intermittently falling for months, primarily due to the RBI's intervention in the market to defend the depreciating rupee against the surging US dollar.

RBI's Market Intervention

The RBI intervenes in the market from time to time, particularly through liquidity management, including the selling of dollars, to prevent a steep depreciation in the rupee. Union Finance Minister Nirmala Sitharaman noted in a recent Parliament session that the RBI closely monitors foreign exchange markets and only intervenes to maintain orderly market conditions by controlling excessive volatility in the exchange rate, without reference to any predetermined target level or band.

Sharpest weekly fall in 11 months

India's forex reserves have seen a significant decline, with the largest reduction in over 11 months. The decrease in foreign currency assets and gold reserves can be attributed to the RBI's intervention in the market and the increase in the cost of imported goods. The RBI continues to monitor foreign exchange markets to maintain orderly conditions without reference to any pre-determined target level or band.