India's Forex Reserves Dip: RBI's Bold Efforts to Control Currency Volatility

India's forex reserves have dropped to USD 656.58 billion as the Reserve Bank of India utilizes them to mitigate currency volatility amid persistent dollar outflows and foreign portfolio investor (FPI) withdrawals. The central bank's decisive steps aim to stabilize the rupee and manage economic challenges.

The Reserve Bank of India (RBI) is deploying its forex reserves to tackle the country's currency volatility, leading to a reduction in the reserves from USD 705 billion to USD 656.58 billion, as reported by Union Bank of India. This decision comes as persistent dollar outflows exert pressure on the Indian Rupee.

The banking report attributes the rupee's decline to continuing foreign portfolio investor (FPI) withdrawals from the equity market, pushing the currency to unprecedented lows. As of November 22, 2024, the country's forex reserves had fallen by USD 1.31 billion in a week, amounting to a total decrease of USD 48.30 billion from their peak.

The report also emphasizes a shift in the government's fiscal balance and liquidity management efforts. While the balance slipped into Ways and Means Advances (WMA) by mid-November, it rebounded to Rs 1.3 lakh crore by the end of the month, signifying improved financial resilience. The narrowing credit-deposit growth gap in the banking sector further reflects the central bank's proactive strategies amid global and domestic economic volatility. However, the rupee remains under pressure, trading at 84.7225 against the US dollar.

(With inputs from agencies.)