India's foreign exchange reserves rose by $2.362 billion to $703.308 billion in the week ended April 17, the Reserve Bank of India (RBI) announced on Friday. This increase follows a gain of $3.825 billion in the previous week, when reserves stood at $700.946 billion.
The reserves had earlier touched a record high of $728.494 billion in the week ended February 27. However, they subsequently declined as the Middle East conflict, which began around February 28, intensified. The geopolitical tensions during this period put pressure on the rupee, prompting the RBI to intervene by selling dollars in the forex market.
Key Components of Reserves
In the latest week, foreign currency assets, the largest component of the reserves, increased by $1.481 billion to $557.463 billion. These assets are affected by fluctuations in the value of major currencies such as the euro, pound, and yen.
Gold reserves also rose by $790 million to $122.133 billion. Meanwhile, Special Drawing Rights (SDRs) increased by $78 million to $18.841 billion. India's reserve position with the International Monetary Fund (IMF) grew by $14 million to $4.87 billion, according to RBI data.
RBI's Forex Operations
The central bank stepped up its dollar purchases in February, indicating a move towards rebuilding foreign exchange reserves after the rupee stabilized following the US-India trade deal announcement earlier that month. Despite strong buying in the spot market, net forward sales stood at $77.7 billion, showing that the RBI continued to rely on forward market operations.
While February offered some room to add to reserves, a large portion of those gains was later eroded in March when the rupee came under pressure following the US-Iran conflict that began on February 28.
Data from the RBI's April Bulletin showed that the central bank was a net buyer of $7.4 billion in the over-the-counter (OTC) market. It purchased $21.4 billion and sold $14 billion during the period, leading to a liquidity injection of Rs 66,881 crore into the system.
In the futures market, the RBI maintained a neutral stance with no net intervention, while slightly reducing its outstanding net sales position to $522 million.
