India’s foreign exchange reserves saw an uptick of USD 305 million in the week ending March 14, taking the overall reserves to USD 654.271 billion. This recent increase comes on the heels of a robust surge the week before, which had marked the highest weekly gain in over three years, signaling renewed momentum in reserve accumulation.
Recovery Follows Period of Consistent Decline
Before this positive shift, India’s forex reserves had undergone a sustained downward trend over a four-month period. During that time, they dipped to an 11-month low, reflecting global uncertainty and domestic currency pressures. Since then, reserve levels have moved in a fluctuating pattern, alternating between weekly gains and losses.
Forex Reserves Still Below Historical Peak
Although the current level of USD 654.3 billion is encouraging, it remains below the all-time high of USD 704.89 billion recorded in September. The nearly 7 percent drop from that peak is primarily attributed to the Reserve Bank of India’s interventions in the currency markets aimed at stabilizing the Rupee. The Indian Rupee, which continues to hover close to its record low against the US dollar, has seen the RBI take steps to curb excessive depreciation.
Breakdown of Reserve Composition
According to the Reserve Bank of India’s latest data, foreign currency assets (FCA), which form the largest part of the forex reserves, stood at USD 557.186 billion. In addition, India’s gold holdings were valued at USD 74.391 billion, contributing a significant portion to the overall reserve strength.
Import Coverage Remains at Comfortable Levels
Current estimates suggest that the size of the reserves is sufficient to cover around 10 to 11 months of projected imports. This level is seen as a strong buffer against external economic shocks, offering stability in the event of global market turbulence or trade disruptions.
Annual Trends Reflect a Measured Growth Path
Over the course of 2023, India added approximately USD 58 billion to its forex reserves, reversing the trend seen in 2022, when the reserves had declined by a total of USD 71 billion. In the current year so far, 2024 has recorded a modest net increase of just over USD 20 billion, highlighting a more cautious pace of accumulation amid continued global economic uncertainties.
The Strategic Role of FX Reserves
Foreign exchange reserves play a pivotal role in a country’s financial health. These reserves are typically held in major global currencies, predominantly the US dollar, with smaller portions in the Euro, Japanese Yen, and British Pound. Managed by the central bank, these assets are utilized to manage exchange rate stability, facilitate international trade, and safeguard against balance of payment crises.
RBI’s Market Interventions Help Maintain Stability
The Reserve Bank of India actively participates in the foreign exchange market, adjusting liquidity as needed to protect the Rupee’s value. When the Rupee strengthens, the RBI purchases dollars to prevent excessive appreciation. Conversely, when the currency weakens sharply, the central bank sells dollars from its reserves to ease volatility. These actions form a key part of its broader monetary and exchange rate policy framework.