India’s crucial foreign exchange reserves have taken another hit, declining by $3.06 billion to $696.67 billion for the week ending July 11. This marks the second consecutive weekly decline, sparking concerns among financial analysts and putting the spotlight on the Reserve Bank of India (RBI)’s next moves.
The latest data from the RBI reveals that the fall was largely driven by a $2.477 billion dip in foreign currency assets, the largest component of the reserves. Adding to the concern, gold reserves also saw a significant drop of $498 million, settling at $84.348 billion. Even Special Drawing Rights (SDRs) with the IMF and India’s Reserve Position in the IMF saw minor decreases.
This recent slump follows a $3.049 billion slip in the previous week, bringing the total reserves down from a high of $699.736 billion. While India’s forex kitty hit an all-time high of $704.885 billion at the end of September 2024, the current trend of decline is notable.
Despite the recent dips, RBI Governor Sanjay Malhotra recently expressed confidence, stating that India’s forex reserves are sufficient to cover 11 months of imports and approximately 96% of external debt, indicating a resilient external sector.
However, market watchers will be closely monitoring the situation. The RBI often intervenes in the forex market by selling dollars to prevent sharp Rupee depreciation, and the recent declines could signal increased intervention. The strategic accumulation of safe-haven gold by central banks, including the RBI, has been a key trend, with India’s gold share in reserves almost doubling since 2021.
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