India’s Forex Reserves Decline by $1.781 Billion to $638.698 Billion in February End: RBI Report

 India’s foreign exchange reserves saw a significant dip in the week ending February 28, 2025, as they decreased by $1.781 billion, bringing the total reserves to $638.698 billion, according to the Reserve Bank of India’s (RBI) report on Friday. This marks a decline after the forex reserves had risen by $4.758 billion in the previous week, reaching $640.479 billion. The report highlights the fluctuation in India’s foreign exchange reserves, which have been subject to market forces and external economic conditions.

At the end of September 2024, India’s forex reserves had reached an all-time high of $704.885 billion, driven by a period of strong capital inflows and a stable economic outlook. However, the decline observed in the last week of February represents a contraction in the overall forex kitty, highlighting the dynamic nature of foreign exchange reserves that are susceptible to various external and internal factors.

The data released by the RBI indicated that foreign currency assets, which are a major component of the reserves, experienced a decrease of $493 million, settling at $543.35 billion for the week ending February 28. These assets are primarily denominated in non-US dollar currencies, including the euro, pound, and yen. The change in the value of these currencies relative to the US dollar is a key factor in the fluctuation of foreign currency assets. The weakening of these currencies against the dollar in recent times may have contributed to the overall decline in foreign currency assets.

Additionally, India’s gold reserves also saw a decline, dropping by $1.304 billion to $73.272 billion during the week. Gold is often considered a safe-haven asset, and fluctuations in its price on the global market can have a direct impact on the country’s overall reserves. The decrease in gold reserves reflects broader market conditions, which saw a dip in gold prices, contributing to the reduction in the total value of the reserves.

The Special Drawing Rights (SDRs), an international reserve asset created by the International Monetary Fund (IMF), rose by $27 million to $17.998 billion. SDRs are used by the IMF to supplement its member countries’ official reserves and can be exchanged among member countries for freely usable currencies. While the increase in SDRs is a positive development, it is relatively small compared to the overall decline in the other components of India’s forex reserves.

India’s reserve position with the IMF also fell slightly by $12 million, reaching $4.078 billion for the week ending February 28. This reserve position represents the balance available to India from the IMF, and while this decrease is marginal, it indicates a minor shift in India’s reserve position relative to the global financial institution.

Overall, while India’s foreign exchange reserves remain at a substantial level, the decline observed in February reflects the complexities of global economic conditions, including fluctuations in currency values, gold prices, and international financial dynamics. The RBI’s report underscores the importance of maintaining robust forex reserves to ensure economic stability and resilience in the face of external shocks and global financial challenges. As India continues to navigate these challenges, the government and the central bank will likely take measures to bolster the country’s foreign exchange reserves and ensure long-term economic stability.

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