India's foreign exchange reserves witnessed a significant decline of $4.47 billion during the latest reporting week, bringing the total reserves down to $688.1 billion as of June 28, 2024, according to data released by the Reserve Bank of India.
Weekly Decline in Foreign Exchange Kitty
The Reserve Bank of India's weekly statistical supplement revealed that the country's overall forex reserves dropped to $688.155 billion for the week ended June 28, 2024, marking a substantial decrease from the previous week's figure of $692.626 billion. This represents one of the more notable weekly declines in recent months, reflecting changing dynamics in the country's external sector.
The central bank's data indicates that the foreign currency assets (FCAs), which constitute the largest component of the forex reserves, experienced a significant contraction. FCAs decreased by $3.699 billion to $604.966 billion during the reporting week. These assets are maintained in major global currencies like the US dollar, euro, pound sterling, and Japanese yen, and their valuation fluctuates with exchange rate movements.
Gold Reserves and Special Drawing Rights
India's gold reserves, another crucial component of the country's foreign exchange holdings, also registered a decline during the week under review. The value of gold reserves fell by $659 million to $49.904 billion, reflecting changes in both quantity held and international gold price fluctuations.
The Special Drawing Rights (SDRs) with the International Monetary Fund showed a marginal decrease of $86 million, settling at $18.056 billion. Meanwhile, India's reserve position with the IMF witnessed a minor decline of $26 million, reaching $4.229 billion during the same period.
Context and Economic Implications
The recent decline in forex reserves comes amid ongoing global economic uncertainties and fluctuations in currency markets. Forex reserves serve as a critical buffer for the Indian economy, providing stability to the rupee and ensuring the country's ability to meet external payment obligations.
Earlier in the year, India's foreign exchange reserves had reached an all-time high of $648.562 billion in April 2024, demonstrating the country's strong external position. The current level of $688.1 billion, despite the weekly decline, remains substantially healthy and provides adequate cover for imports.
Economists suggest that the fluctuation in reserves can be attributed to multiple factors, including the Reserve Bank's intervention in currency markets to manage rupee volatility, changes in the valuation of foreign currency assets due to dollar strength, and possible outflows from domestic markets.
The central bank actively manages the foreign exchange reserves to ensure financial stability while aiming to generate reasonable returns on the investments. The recent data underscores the dynamic nature of India's external account and the ongoing challenges in maintaining reserve levels amid global economic headwinds.
