India's foreign exchange reserves rose by USD 5.736 billion to USD 622.469 billion in the week that ended on February 2, 2024, hitting a month high, the latest data released by the Reserve Bank of India showed.
Breakdown of components in Forex Reserves
During the week, India's foreign currency assets (FCA), the biggest component of the forex reserves, rose by USD 5.186 billion to USD 551.331 billion, the central bank's weekly statistical data showed.
Gold reserves during the week rose by USD 608 million to USD 48.088 billion.
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Recent Trends and Performance
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.
Factors Influencing Forex Reserves
In October 2021, the country's foreign exchange reserves touched an all-time high of about USD 645 billion. Much of the decline, though marginal on a cumulative basis, since then 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.
RBI's role in forex market
Typically, the RBI, from time to time, intervenes in the market through liquidity management, including through the selling 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.
