Forex reserves shrink. Forex reserves shrink $2.597 billion to stand at $619.678 billion

The country’s foreign exchange reserves declined by $2.597 billion in the week ended March 18, 2022, to stand at $619.678 billion.

In the previous week ended March 11, the reserves had shrunk by a whopping $9.646 billion. This was probably the single steepest weekly fall in the forex reserves.

Earlier this week, Reserve Bank of India Governor Shaktikanta Das observed that other than the forex reserves, India holds a lot of forex ($55 billion) in forward assets, which will mature in the coming months.

“India is comfortably placed to deal with any effect of spillover or any challenge with regard to financing of current account deficit. FDI inflow is also expected ... I can say with reasonable amount of confidence that we will be able to maintain stability of rupee,” the Governor said in his address to the CII National Council on March 21.

Key factors

In the reporting week, the drop in reserves was mainly due to gold and foreign currency assets (FCAs) components declining by $1.831 billion and $703 million, respectively.

Foreign currency assets comprise multi-currency assets (securities, deposits with other central banks & BIS, and deposits with with commercial banks overseas) that are held in multi-asset portfolios.

The third component of the reserves — Special Drawing Rights — declined by $62 million. The fourth component of the reserves — Reserve Position in the IMF — remained unchanged during the reporting week.