Foreign exchange reserves decline by $6.24 billion to $583.94 billion

Context

India’s foreign exchange reserves have declined by a massive USD 6.24 billion to reach USD 583.945 billion. In the previous week, the reserves had touched a record high of USD 590.185 billion.

Foreign Currency Assets (FCAs)

• Foreign exchange reserves are assets denominated in a foreign currency that is held by a central bank.

• Reserve Bank of IndiaAct and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves. 
• Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising
• The Foreign exchange reserves of India consists of below four categories
• Foreign Currency Assets
• Gold
• Special Drawing Rights(SDRs)
• Reserve Tranche Position

Reasons behind the decline

• The decline in the forex was mainly on account of a fall in foreign currency assets (FCAs), a major component of the overall reserves.
• 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.