India's forex reserves increased by USD 140 million to touch its all-time high of USD 642.631 billion during the week ended March 22, the Reserve Bank said.

This is the fifth consecutive week of a jump in the overall reserves. The kitty had increased by USD 6.396 billion to USD 642.492 billion in the previous reporting week.

The previous peak level was recorded in September 2021 when the country's foreign exchange reserves reached USD 642.453 billion.

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.

The reserves took a hit as the central bank deployed the kitty to defend the rupee amid pressures caused majorly by global developments since last year.

For the week ended March 22, the foreign currency assets, a major component of the reserves, decreased by USD 123 million to USD 568.264 billion, the data released on Friday showed.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Gold reserves increased by USD 347 million to USD 51.487 billion during the week, the RBI said. The Special Drawing Rights (SDRs) were down by USD 57 million to USD 18.219 billion, the apex bank said.

India's reserve position with the IMF was also down by USD 27 million to USD 4.662 billion in the reporting week, the RBI data showed.

Changes in foreign currency assets, expressed in dollar terms, include the effect of appreciation or depreciation of other currencies held in its reserves.

Foreign exchange reserves include India’s Reserve Tranche position in the International Monetary Fund. The Reserve Bank of India (RBI) intervenes in the foreign exchange market to curb excess volatility in the rupee.

Typically, the RBI, from time to time, intervenes in the market through liquidity management, including through the sale 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.

Foreign Exchange Reserves & India

Foreign exchange reserves, also called Forex reserves, are, in a strict sense, only foreign-currency deposits held by nationals and monetary authorities. However, in popular usage, it also includes gold reserves, special drawing rights (SDRs) and IMF reserve position because this total figure, which is usually more accurately termed as official reserves or international reserves or official international reserves, is more readily available and arguably more meaningful.

These foreign-currency deposits are the financial assets of the central banks and monetary authorities that are held in different reserve currencies (e.g. the U.S. Dollar, the Euro, the Japanese Yen, the Indian Rupee, the Pound Sterling, and the Chinese Yuan) and which are used to back its liabilities (e.g. the local currency issued and the various bank reserves deposited with the Central bank by the government or financial institutions). Before the end of the gold standard, gold was the preferred reserve currency.

The foreign exchange reserves of India are the world's fourth largest. On 4 June 2021 reserves exceeded USD 600 billion for the first time and they became the fifth country after Switzerland to do so. During the 1991 Indian economic crisis country only had USD 5 billion of reserves left which led to subsequent economic liberalisation. Since then, the reserves have seen 127 times increase over 30 years.

Sources – PTI, Reuters