India's Forex Reserves Experience a Slight Decline

India's foreign exchange reserves have seen a decrease of $2.06 billion in the week ending 2 May, according to the latest data from the Reserve Bank of India (RBI). This marks the end of an eight-week consecutive growth streak, bringing the total reserves down to $686.06 billion.

Components of Forex Reserves Show Mixed Trends

While foreign currency assets, the largest component of India's forex reserves, saw a slight increase of $514 million to $581.18 billion, gold reserves dropped by $2.55 million to $81.82 billion. Special drawing rights (SDRs) with the IMF also decreased by $30 million to $18.56 billion.

Reserves Adequate to Cover Imports

The RBI estimates that the current level of reserves is sufficient to cover projected imports for 10-12 months. This follows a pattern of fluctuations since September, when reserves peaked at a record high of $704.89 billion.

RBI's Role in Managing Forex Reserves

The central bank actively manages liquidity in the currency markets, selling dollars during periods of Rupee weakness and accumulating reserves when the currency is strong. Last year, forex reserves saw a significant increase, adding more than $20 billion, and in 2023, the reserves grew by nearly $58 billion.