India's foreign exchange reserves reach new high of $655.8 billion

The reserves have been growing steadily for some time now. It has increased by more than US$30 billion on a cumulative basis so far in 2024.

India's foreign currency assets (FCA), the biggest component of the forex reserves, rose by $3.773 billion to $576.337 billion, according to the latest data released by the Reserve Bank of India (RBI).

Gold reserves rose by US$481 million to US$56.982 billion during the week.

According to a recent report by the Reserve Bank of India, India's foreign exchange reserves are now enough to cover about 11 months of estimated imports.

In the calendar year 2023, the RBI added about USD 58 billion to its foreign exchange reserves. In 2022, India's foreign exchange reserves declined cumulatively by USD 71 billion.

Foreign exchange reserves or foreign exchange reserves (FX reserves), are assets held by a country's central bank or monetary authority. It is usually held in reserve currencies, usually the US dollar and to a lesser extent the euro, Japanese yen and pound sterling.

The country's foreign exchange reserves last hit an all-time high in October 2021. A large part of the subsequent decline can be attributed to the increase in the cost of imported goods in 2022.

Further, the relative decline in forex reserves can also be linked to RBI's intervention in the market from time to time to prevent uneven depreciation of the rupee against the rising US dollar.

Usually, the Reserve Bank of India intervenes in the market through liquidity management, including dollar sales, from time to time to prevent a sharp fall in the rupee.

The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions by controlling excessive volatility in the exchange rate, without reference to any predetermined target level or band.