India forex reserves drop by $6b to $594b

India's foreign exchange reserves dropped by $6.1 billion to $593.5 billion during the week ended May 19, the RBI said on Friday. The drop snapped two consecutive weeks of increases. In the previous week, the overall reserves had increased by $3.5 billion to take the overall quantum just shy of $600 billion.

In October 2021, the forex kitty had reached an all-time high of $645 billion. The reserves have been declining as the central bank deploys the kitty to defend the rupee amid pressures caused majorly by global developments. Foreign currency assets include the effect of appreciation or depreciation of non-US units.

A report by Deccan Herald states that the reasons behind the dip are a “sharp drop in the value of gold reserves and foreign currency assets” and RBI intervention to maintain stability in the Indian rupee’s value.

“We had to intervene in the market because our primary focus is to maintain the stability of the Indian rupee, the stability of the exchange rate,” RBI governor Shaktikanta Das told the newspaper.

Gold reserves declined by $1.22 billion to $45.12 billion during the week ended May 19.

While the reserves had increased in the couple weeks before last, they have been generally declining since reaching a record high of $645 billion in October 2021 due to efforts by the RBI to defend the rupee from global pressures, Business Standard reported.

Foreign exchange reserves are like piggy banks of foreign currency that countries store to keep their economies stable. They use these reserves to pay for goods from other countries and buy back their own currencies in order to stabilise their value.