Thursday, 10 Oct, 2024
India's foreign exchange reserves increased by around 36 percent, or 6.3 percent annually, from $303.7 billion in March 2014 to $411.9 billion in March 2019 during Modi 1.0. Image Source: IANS
India's reserve position with the International Monetary Fund (IMF) was down by $58 million to $4.62 billion in the reporting week.
According to the most recent data released by the Reserve Bank of India (RBI), India's foreign exchange reserves jumped by $2.29 billion to reach an all time high of $683.98 as of August 30. According to the weekly statistical supplement released by the RBI, gold reserves rose by $862 million, bringing the total to $61.85 billion. According to the apex bank, the Special Drawing Rights (SDRs) increased by $9 million to $18.46 billion. India's reserve position with the International Monetary Fund (IMF) was down by $58 million to $4.62 billion in the reporting week.
Sanjeev Agrawal, President of the PHD Chamber of Commerce and Industry, said the milestone will further strengthen the country’s external sector resilience. “With the support of prudent policy initiatives and a vigilant monetary policy stance, forex has reached the new all-time high record of over $683 billion amidst growing geopolitical uncertainties,” said Agrawal. ‘’Going ahead, coupled with RBI’s robust policies and continued handholding by the government, India’s strong forex will boost economic growth trajectory by strengthening its position internationally, drawing in foreign investments, and promoting domestic trade and industry,'' he added.
According to persons with knowledge of the event, the increase in reserves in the week ending August 30 most likely represented the effect of MSCI (Morgan Stanley Capital International) rebalancing its indices, which led to inflows of around $5.5 billion on August 30.
In October of 2021, India’s foreign exchange or forex reserves reached an all-time high of $642 billion. The period since then the country’s reserves took a hit as several global developments forced the Reserve Bank of India (RBI) to use the reserves to defend the rupee. But 2023 brought in some relief as the year saw the reserves take on some more weight owing to strong macroeconomic fundamentals amidst a recuperating global economy. On December 01, 2023, RBI reported the country’s forex reserves at $604 billion.
Source: Reserve Bank of India
India's foreign exchange reserves increased by around 36 percent, or 6.3 percent annually, from $303.7 billion in March 2014 to $411.9 billion in March 2019 during Modi 1.0. With yearly growth reaching 9.4 percent and reserves reaching $645.6 billion, including $52.2 billion in 2024 from $23.4 billion in 2019—the fastest rate of growth in Modi 2.0—was achieved. Foreign exchange reserves increased by an additional $39 billion during the previous five months, reaching $684 billion in August 2024. FX reserves only build up when they are purchased by the RBI from the market. Therefore, the RBI has deliberately decided to increase its reserves as a policy measure.
Foreign currency maintained by a country's central bank is known as its Forex reserves. It offers protection from unforeseen external shocks. Typically, reserve currencies like the dollar are used to maintain it. The fundamental goal of holding foreign exchange reserves is to preserve confidence in the monetary and exchange rate management policies as well as to preserve currency liquidity to absorb external shocks. Also, having sufficient reserves helps reassure investors in times of extreme uncertainty, such as wars or unrest, portrays a positive image, and reassures trading countries.
An increase in the forex reserves can either be due to an inflow of US dollars or due to appreciation of foreign assets held in the reserves. On the other hand, a decrease in forex reserves might be due to outflow of USD or depreciation in valuation of assets held in the reserves. Forex reserves also include India's reserve tranche position in the International Monetary Fund and help provide the RBI a cushion to deal with external shocks.
At times of tight monetary policy, investors tend to gravitate towards stable economies like the US in search of higher and more reliable returns. In order to stop a sharp depreciation of the rupee, the RBI often occasionally intervenes in the market through liquidity management, including by selling dollars. To stop the rupee's currency rate from moving inexorably against the dollar, the central bank makes interventions in the spot and futures markets. The RBI has previously said that changes in reserves also result from gains or losses in valuation.
