India’s Forex Reserves Drop by $1.78 Billion, Hit 11-Month Low – Here’s Why

India’s foreign exchange reserves fell by $1.781 billion to $638.698 billion in the week ending February 28, according to RBI data. The reserves have been on a volatile trajectory, reaching an 11-month low after nearly four months of decline.

Since peaking at $704.89 billion in September, they have dropped by nearly 10%, mainly due to the RBI’s interventions to stabilize the Rupee. Foreign currency assets stood at $543.350 billion, while gold reserves totaled $73.272 billion, covering approximately 10–11 months of imports.

Despite a $58 billion rise in 2023 following a $71 billion decline in 2022, reserves in 2024 have grown by just over $20 billion. The RBI continues managing reserves to control currency fluctuations, primarily holding assets in US dollars, with smaller allocations in the Euro, Yen, and Pound Sterling.

India’s Forex Reserves Drop by $1.78 Billion, Hit 11-Month Low – Here’s Why

India’s foreign exchange reserves declined by $1.781 billion in the week ending February 28, bringing the total to $638.698 billion, according to the latest data from the Reserve Bank of India (RBI).

The country’s forex reserves have followed a volatile pattern, hitting an 11-month low after nearly four months of consecutive declines. While some weeks recorded gains, others saw fresh decreases.

Since reaching an all-time high of $704.89 billion in September, reserves have dropped by nearly 10%. Analysts attribute the recent decline to the RBI’s efforts to stabilize the Rupee, which remains close to its record low against the US dollar.

According to RBI data, India’s foreign currency assets (FCA) stood at $543.350 billion, while gold reserves amounted to $73.272 billion. Estimates suggest that the reserves are sufficient to cover approximately 10–11 months of projected imports.

In 2023, India’s forex reserves increased by about $58 billion, recovering from a $71 billion decline in 2022. So far, in 2024, the reserves have grown by just over $20 billion.

The RBI manages forex reserves to regulate the Rupee’s value, typically selling dollars to curb depreciation and buying when the currency strengthens. While the reserves are primarily held in US dollars, they also include smaller allocations in the Euro, Japanese Yen, and Pound Sterling.

India’s foreign exchange reserves play a crucial role in maintaining financial stability, supporting the Rupee, and ensuring the country can meet its international obligations. They act as a buffer against external economic shocks, allowing the RBI to manage currency fluctuations and control inflation. A strong reserve position reassures investors, strengthens market confidence, and helps India maintain its sovereign credit rating.

The recent decline in India’s forex reserves is largely attributed to the RBI’s intervention in the foreign exchange market. The central bank has been selling US dollars to curb Rupee depreciation, as the Indian currency remains close to its all-time low against the dollar. Global economic uncertainties, fluctuating capital flows, and rising crude oil prices have also impacted the reserves.

India’s forex reserves consist of four main components: foreign currency assets (FCA), gold reserves, Special Drawing Rights (SDRs), and the reserve position in the International Monetary Fund (IMF). The largest portion, FCA, stands at $543.350 billion and is mostly held in US dollars, with some investments in the Euro, Yen, and Pound Sterling. Gold reserves, valued at $73.272 billion, provide stability during times of currency depreciation. SDRs and India’s IMF reserve position contribute to the overall forex holdings, offering additional financial security.

Despite recent fluctuations, India’s forex reserves remain strong, covering about 10–11 months of imports. Experts believe that strategic forex management by the RBI and stable economic growth will help maintain a healthy reserve level in the long term. The reserves also support the country’s ability to meet external debt obligations, ensure smooth trade transactions, and provide confidence to foreign investors. Moving forward, the RBI’s monetary policies and global economic conditions will continue to influence the level and composition of India’s forex reserves.