India’s foreign exchange reserves have reached a historic milestone, crossing the $700 billion mark for the first time, following seven consecutive weeks of growth.
The surge, driven by the Reserve Bank of India’s (RBI) strategic dollar purchases and valuation gains, marks a significant boost to the country’s financial strength.
According to RBI data released on Friday, the reserves stood at $704.89 billion as of the week ending September 27, 2024—an increase of $12.6 billion, the largest weekly rise since mid-July 2023.
India joins an elite group of global economies
India is only the fourth economy in the world after China, Japan, and Switzerland which have surpassed the $700 billion reserve threshold.
This achievement reflects the country’s robust macroeconomic policies and strategic reserve management, which have contributed to a steady buildup of forex reserves since 2013.
Back then, India faced massive foreign outflows due to weak economic fundamentals, but a combination of fiscal discipline, strong economic growth, and inflation control has since helped attract significant foreign capital.
Foreign inflows, particularly in local debt markets, have played a key role in boosting reserves in 2024.
So far, India has attracted $30 billion in foreign investments, with a large chunk of this driven by India’s inclusion in JPMorgan’s key emerging market debt index.
The consistent accumulation of forex reserves helps the RBI mitigate currency volatility and protect against sudden capital outflows, offering a buffer for the Indian economy.
“Adequate FX reserves reduce currency volatility and provide the central bank with firepower to intervene when necessary,” Gaura Sen Gupta, an economist at IDFC First Bank was quoted as saying by Reuters.
She added that high reserves also instill investor confidence, lowering the risk of sharp capital flight.
The reasons: US Treasury yields, weakening dollar, gold price rise
So far in 2024, India’s forex reserves have grown by an impressive $87.6 billion, far outpacing the $62 billion increase seen in the entire year of 2023.
In the latest week, the reserves grew by $4.8 billion from the RBI’s dollar purchases, and an additional $7.8 billion in valuation gains.
These gains were attributed to falling US Treasury yields, a weakening dollar, and a rise in global gold prices.
The RBI has been actively managing the rupee, keeping it within a controlled trading range for several months.
This intervention has made the Indian rupee one of the least volatile currencies among emerging markets.
RBI Governor Shaktikanta Das recently commented on the low volatility of the rupee, stating that excessive fluctuations do not benefit the economy.
India’s forex reserve accumulation reflects the country’s strong economic fundamentals and prudent reserve management strategy, positioning it as a formidable player in global markets.
As foreign inflows continue to rise, India’s financial resilience is set to strengthen further
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