India’s foreign exchange reserves continue to plunge, down 10% from peak

India’s foreign exchange reserves have declined in 12 of the last 13 weeks, hitting a multi-month low
India’s foreign exchange reserves continue to decline, continuing a three-month long decline. In the week ended December 27, the country’s foreign exchange reserves fell by $4.112 billion to $640.279 billion, data from the Reserve Bank of India (RBI) showed.
India’s foreign exchange reserves have declined in 12 of the last 13 weeks, hitting a multi-month low.
The reserves have been declining ever since they touched an all-time high of $704.89 billion in September. Effectively, it is now down by about 10 per cent from the peak.
The decline in reserves is due to the RBI’s aggressive intervention to arrest the sharp fall in the rupee. The latest RBI data showed that India’s foreign currency assets (FCA), the largest component of forex reserves, stood at $551.921 billion.
Gold reserves currently stand at $66.268 billion, according to RBI data. Estimates suggest that India’s forex reserves are roughly equivalent to a year or so of projected imports. In 2023, India added about $58 billion to its forex reserves, while there was a cumulative decline of $71 billion in 2022.
In 2024, the reserves increased by a little over $20 billion. Without the latest decline, the reserves would have been much higher. Foreign exchange reserves, or FX reserves, are assets held by a country’s central bank or monetary authority, primarily in reserve currencies such as the US dollar, with a smaller portion in the euro, Japanese yen and pound sterling.
The RBI closely monitors the foreign exchange markets, intervening only to maintain orderly market conditions and prevent 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 a sharp fall in the rupee’s value. A decade ago, the Indian rupee was one of the most volatile currencies in Asia. Since then, it has become one of the most stable currencies.
The RBI has strategically bought dollars when the rupee is strong and sold it when it is weak, increasing the appeal of Indian assets to investors.