(CTN News) – In the week ending October 20, India’s foreign exchange (forex) reserves experienced a decline of $2.36 billion, falling to $583.53 billion.
This decrease follows a previous week in which the reserves had increased by $1.153 billion, reaching $585.895 billion. Let’s delve into the details and understand the reasons behind this fluctuation in India’s forex reserves.
Overview of Forex Reserves Decline
In October 2021, India’s forex reserves reached an all-time high of $645 billion. However, since then, the reserves have been under pressure due to global developments. The Reserve Bank of India (RBI) has been actively using these reserves to defend the Indian rupee.
Factors Behind the Decrease in Forex Reserves
For the week ending October 20, the major component of forex reserves, foreign currency assets, decreased by $4.15 billion to $515.2 billion.
This decline can be attributed to various factors, including the appreciation or depreciation of non-US currencies like the euro, pound, and yen, which are held in India’s forex reserves.
On a positive note, gold reserves increased by $1.85 billion to $45.42 billion during the same week. However, Special Drawing Rights (SDRs) experienced a decrease of $70 million, settling at $17.93 billion.
India’s reserve tranche position with the International Monetary Fund (IMF) saw a modest increase of $6 million, reaching $4.98 billion in the reporting week.
Composition of India’s Forex Reserves
India’s forex reserves are a combination of various assets, including foreign currency assets, gold reserves, SDRs, and the reserve tranche position in the IMF. These components collectively determine the strength of India’s forex kitty.
RBI’s Role in Maintaining Forex Reserves
The RBI plays a crucial role in managing and safeguarding India’s forex reserves. The central bank intervenes in both the spot and forwards markets to prevent abrupt fluctuations in the value of the rupee.
Changes in foreign currency assets are influenced by the RBI’s interventions, as well as the fluctuations in foreign assets held in the reserves.
Recent Volatility in Forex Reserves
India’s forex reserves have experienced significant fluctuations in recent weeks. They decreased by $14.2 billion over five weeks until October 6, marking a five-month low.
However, in the week ending October 13, they saw a modest increase of $1.16 billion. This volatility reflects the ongoing challenges in maintaining a stable balance of forex reserves amid global economic uncertainties.
Rupee’s Performance in the Foreign Exchange Market
Amid these developments, the Indian rupee faced a three-day downward trend but eventually settled flat at 83.25 against the US dollar on the specified Friday.
The rupee’s stability was influenced by the support from positive domestic equities, although the surge in crude oil prices and selling pressure from foreign equity investors continued to impact the local currency.
In conclusion, India’s forex reserves remain a crucial tool in stabilizing the country’s economy and currency. The recent fluctuations highlight the challenges faced by the RBI in managing these reserves to protect the rupee and ensure financial stability in the face of global economic uncertainties.