India's Foreign Exchange Reserve: India's foreign exchange reserves have been declining continuously for the last three months. According to the latest data from the Reserve Bank of India ( RBI ), the country's foreign exchange reserves fell by $ 4.112 billion to $ 640.279 billion in the week ended December 27. This is the 12th decline in the last 13 weeks, bringing the reserves to a new low in several months. Foreign exchange reserves reached an all-time high of $ 704.89 billion in September, but since then it has declined by about 10 percent.

Why are foreign exchange reserves falling?

The main reason for this decline is RBI's intervention in the currency markets, where it is actively buying and selling dollars to prevent a sharp fall in the rupee. According to the latest RBI data, India's foreign currency assets (FCA), which are the largest part of the currency reserves, are now at $ 551.921 billion. The country's gold reserves are worth $ 66.268 billion.

Foreign exchange reserves in 2022 and 2023

Despite the recent decline, India's foreign exchange reserves are still considered adequate, estimated to cover about a year's worth of projected imports. India added about $58 billion to its reserves in 2023, compared to a cumulative drop of $71 billion in 2022. Reserves also increased by a little over $20 billion in 2024, and would have been even higher had the recent decline not occurred. Foreign exchange reserves, or FX reserves, are assets held by a country's central bank, primarily in reserve currencies such as the US dollar, with smaller portions in the euro, Japanese yen and pound sterling.

RBI monitors the currency market

The RBI monitors the foreign exchange markets and intervenes to maintain orderly market conditions and prevent excessive volatility in the rupee exchange rate. Foreign exchange reserves are primarily assets held by the central banks of countries, primarily consisting of major currencies such as the US dollar, euro, Japanese yen and British pound. The RBI monitors the currency market and intervenes to prevent any excessive volatility. The RBI's objective is exclusively to maintain stability and does not target any specific reserve level.

RBI's strategy has helped to stabilize the Indian rupee. Ten years ago, the rupee was one of the most volatile currencies in Asia, but the proper management policy of RBI has made the rupee a stable currency. RBI buys dollars when the rupee is strong and sells dollars when the rupee is weak. This not only stabilizes the value of the currency but also makes Indian assets more attractive to foreign investors.