India's Forex Reserves See New Dip Amid Rupee Volatility

India's forex reserves fell by USD 3.23 billion to USD 654.857 billion as of December 6, continuing a downward trend over the past few months. Despite RBI's attempts to stabilize the Rupee through market interventions, reserves have declined significantly from their September peak.

India's foreign exchange reserves have once again dipped, following a brief upswing. According to data released by the Reserve Bank of India (RBI) on Friday, the reserves declined by USD 3.23 billion, settling at USD 654.857 billion for the week ending December 6. This decline continues a trend observed in nine of the past ten weeks, dragging the reserves to a multi-month low. The reserves have been in a downward spiral since reaching an all-time high of USD 704.89 billion in September.

The persistent decline likely results from RBI interventions, aimed at mitigating sharp Rupee depreciations. These interventions are crucial as a substantial reserve buffer protects India's economy from global economic shocks. The latest figures indicate that foreign currency assets (FCA), a significant portion of the reserves, stand at USD 565.623 billion. Meanwhile, gold reserves amount to USD 66.936 billion, and the reserves can cover one year of projected imports.

Notably, INR 58 billion has been added to the reserves by India in 2023, contrasting the USD 71 billion decrease seen in 2022. Foreign exchange reserves primarily consist of assets in reserve currencies, including the US Dollar, Euro, Japanese Yen, and Pound Sterling. The RBI continues to keep a vigilant eye on the forex markets, intervening solely to maintain market order and prevent extreme fluctuations in the Rupee, without targeting specific levels. Through strategic dollar sales and purchases, the RBI strives to enhance the stability of the Rupee and maintain investor interest in Indian assets.

(With inputs from agencies.)