India's Forex Reserves Decline to $639 Billion

India's foreign exchange reserves have seen a significant decrease, falling by $1.781 billion in the week ending February 28, according to the latest data from the Reserve Bank of India (RBI). This drop brings the total reserves to $638.698 billion, marking an 11-month low after nearly four continuous months of declines.

Volatile Trajectory and RBI's Role

The trajectory of India's forex reserves has been volatile, with some weeks witnessing gains and others recording fresh dips. Since reaching an all-time high of $704.89 billion in September, the reserves have dropped by nearly 10%. Analysts attribute the recent decline to the RBI's intervention to stabilize the Rupee, which has been near its all-time low against the US dollar.

Composition and Sufficiency of Reserves

India's foreign currency assets (FCA) are reported at $543.350 billion, with gold reserves amounting to $73.272 billion. These reserves are estimated to cover about 10-11 months of projected imports, indicating a buffer that, while substantial, is under pressure.

Recent Trends and RBI's Strategy

In 2023, India added approximately $58 billion to its forex reserves, reversing the $71 billion decline seen in 2022. So far in 2024, the reserves have grown by just over $20 billion. The RBI actively manages these reserves to stabilize the Rupee, selling dollars to curb depreciation and buying when the Rupee strengthens. The reserves are primarily held in US dollars, with smaller holdings in the Euro, Japanese Yen, and Pound Sterling.