NEW DELHI: India’s forex has started to rally once again after a consecutive plunge for eight months, hitting a multi month low.
Data from the Reserve Bank of India (RBI) earlier this week revealed that India’s foreign exchange reserves rose by $1.510 billion to $658.091 billion for the week ending November 29.
However, since hitting an all-time high of $704.89 billion in September, the reserves have been consistently declining.
This dip in the forex exchange is attributed to the cenbank’s efforts to prevent a sharp fall in the Rupee’s value. A substantial foreign exchange reserve buffer helps shield domestic economic activity from global shocks.
Recent apex bank data showed that India’s foreign currency assets (FCA), the largest component of forex reserves, stood at $568.852 billion while gold reserves stood at $ 66.979 billion.
Estimates indicate that India’s foreign exchange reserves are adequate to cover roughly one year of anticipated imports.
In 2023, India added around $58 billion to its foreign exchange reserves, combating the cumulative decline of $71 billion in 2022.
Foreign exchange reserves, or FX reserves, are assets maintained by a country’s central bank or monetary authority, predominantly in reserve currencies like the US Dollar, alongside smaller holdings in the Euro, Japanese Yen, and Pound Sterling.
The RBI closely monitors foreign exchange markets, intervening only to maintain orderly market conditions and curb excessive volatility in the Rupee exchange rate, without adhering to any fixed target level or range.
The RBI often intervenes to manage liquidity, including selling dollars, to curb sharp rupee depreciation. It has strategically purchased dollars during periods of rupee strength and sold them when the currency weakens, enhancing the appeal of Indian assets to investors.
The rupee has emerged as one of the most stable currencies in Asia over the past decade, transitioning from its earlier phase of volatility.