India’s forex reserves decline for fifth week, possibly due to RBI selling

India’s forex reserves decline for fifth week (Picture credit: ANI) NEW DELHI: India’s foreign exchange reserves fell for the fifth consecutive week after reaching an all-time high last month.In the week ending November 1, forex reserves declined by $2.675 billion to $682.130 billion, according to data released by the Reserve Bank of India (RBI) on Friday.In the three previous weeks, reserves dropped by $3.7 billion, $10.7 billion, $2.16 billion, and $3.463 billion, respectively, the data showed.Reserves had previously peaked at a record high of $704.885 billion before this recent decline, likely due to RBI intervention aimed at preventing a sharp depreciation of the Rupee.A substantial foreign exchange reserve buffer helps shield domestic economic activity from global shocks.The latest RBI data shows that India’s foreign currency assets (FCA), the largest component of forex reserves, stand at $589.849 billion.Gold reserves currently amount to $69.751 billion, according to Friday’s data.Estimates suggest that India’s foreign exchange reserves are now sufficient to cover approximately one year of projected imports.In 2023, India added around $58 billion to its foreign exchange reserves, contrasting with a cumulative decline of $71 billion in 2022.Foreign exchange reserves, or FX reserves, are assets held by a nation’s central bank or monetary authority, primarily in reserve currencies such as the US Dollar, with smaller portions 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 by managing liquidity, including selling dollars, to prevent steep Rupee depreciation. A decade ago, the Indian Rupee was among the most volatile currencies in Asia. Since then, it has become one of the most stable. The RBI has strategically bought dollars when the Rupee is strong and sold when it weakens, enhancing the appeal of Indian assets to investors.