The Weekly Statistical Supplement released by the RBI highlights that the primary contributor to this decline was the drop in Foreign Currency Assets (FCAs), which fell by $10.5 billion to $602 billion. It’s important to note that the dollar value of FCAs is influenced by the appreciation or depreciation of non-US currencies, such as the euro, pound, and yen, held within the country’s foreign exchange reserves.
In addition to the FCAs, other components of the forex reserves also saw reductions. Gold reserves decreased by $98 million, bringing the total down to $65.6 billion. The Special Drawing Rights (SDRs) dipped by $86 million, now totaling $18.3 billion, while the reserve position in the International Monetary Fund (IMF) contracted by $20 million, now standing at $4.3 billion.
The RBI actively monitors the foreign exchange markets and intervenes when necessary to maintain orderly market conditions. Its interventions, which include liquidity management and selling dollars, aim to prevent excessive volatility in the exchange rate and to mitigate the risk of a steep depreciation of the Indian rupee.
The central bank’s strategy does not rely on any predetermined target level or band for the rupee’s value, instead focusing on ensuring stability in the foreign exchange markets.