Dipping Indian foreign exchange reserves by $4.4 billion to reach $690.7 billion in the latest week, according to the Reserve Bank of India (RBI)
Reserve Bank of India's Foreign Exchange Reserves: An Overview
The Reserve Bank of India (RBI) manages the country's foreign exchange reserves, a collection of assets primarily held in reserve currencies such as the US Dollar, Euro, Japanese Yen, and Pound Sterling. These reserves serve as a buffer to prevent the Indian Rupee from depreciating too much in the foreign exchange market.
In the week ending August 22, 2023, India's foreign exchange reserves declined by USD 4.4 billion, reaching USD 690.720 billion. This decline was primarily due to a slump in foreign currency assets, which stood at USD 582.251 billion for the reported week, a decrease of USD 3.652 billion.
The RBI manages liquidity by strategically buying and selling dollars. When the Rupee is strong, the RBI sells dollars to keep the currency from appreciating too much. Conversely, when the Rupee weakens, the RBI buys dollars to prevent a steep depreciation.
The foreign exchange reserves have shown fluctuations over the years. In 2022, a cumulative decline of USD 71 billion was observed, while in 2023, India added around USD 58 billion to its foreign exchange reserves. In 2024, the reserves rose by a little over USD 20 billion. So far in 2025, the forex kitty has cumulatively jumped by about USD 53 billion.
The gold reserves currently amount to USD 85.003 billion, having declined by USD 665 million. Despite these fluctuations, the RBI's foreign exchange reserves remain sufficient to meet 11 months of the country's imports, as stated by RBI Governor Sanjay Malhotra after the latest monetary policy review meeting.
However, Governor Malhotra also indicated in 2023 that the country’s foreign exchange reserves might face some volatility due to global economic uncertainties. Yet, he remained confident in their overall stability, attributing the resilience to the RBI's effective management of the foreign exchange reserves.
In summary, the RBI's foreign exchange reserves play a crucial role in maintaining the stability of the Indian Rupee in the foreign exchange market. Despite fluctuations, the reserves remain sufficient to meet the country's import needs, and the RBI continues to manage them effectively to mitigate any significant volatility.
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