India’s foreign exchange reserves touch fresh highs at USD 655.8 billion

India’s foreign exchange reserves jumped USD 4.307 billion to touch a new lifetime high of USD 655.817 billion during the week that ended June 7, official data from the Reserve Bank of India (RBI) showed.

The reserves have been rising on and off for a long time now. So far in 2024, they have risen over USD 30 billion, on a cumulative basis.

According to the latest data released by the Reserve Bank of India (RBI), India’s foreign currency assets (FCA), the biggest component of the forex reserves, rose by USD 3.773 billion to USD 576.337 billion.

Gold reserves during the week rose by USD 481 million to USD 56.982 billion.

India’s foreign exchange reserves are now sufficient to cover around 11 months of projected imports, according to a recent RBI report.

In the calendar year 2023, the RBI added about USD 58 billion to its foreign exchange kitty. In 2022, India’s forex kitty slumped by USD 71 billion cumulatively.

Forex reserves, or foreign exchange reserves (FX reserves), are assets that are held by a nation’s central bank or monetary authority. It is generally held in reserve currencies, usually the US Dollar and, to a lesser degree, the Euro, Japanese Yen, and Pound Sterling.

The country’s foreign exchange reserves last touched their all-time high in October 2021. Much of the decline after that can be attributed to a rise in the cost of imported goods in 2022.

Also, the relative fall in forex reserves could be linked to the RBI’s intervention, from time to time, in the market to defend the uneven depreciation in the rupee against a surging US dollar.

Typically, the RBI, from time to time, intervenes in the market through liquidity management, including through the sale of dollars, to prevent a steep depreciation in the rupee.

The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate, without reference to any pre-determined target level or band.