India’s forex reserves jump by $4 billion to hit a record high of $670.85 billion

By: Team India Tracker

India's foreign exchange reserves are currently enough to cover more than 11 months' worth of anticipated imports, according to a recent RBI study.

According to the most recent data released by the Reserve Bank of India (RBI), India's foreign exchange reserves jumped by $4 billion to reach an all time high of $670.85 billion as of July 19, 2024. According to the weekly statistical supplement released by the RBI, gold reserves rose by $1.329 billion to $59.992 billion over the course of the week. According to the apex bank, the Special Drawing Rights (SDRs) increased by $95 million to $18.207 billion. According to data from the apex bank, India's reserve position with the IMF remained constant during the reporting week at $4.610 billion. 

India's foreign exchange reserves are currently enough to cover more than 11 months' worth of anticipated imports, according to a recent RBI study. The Reserve Bank of India added over $58 billion to its foreign exchange reserves in 2023. Following the 1990–1991 economic crisis, the high-level balance of payments committee led by C Rangarajan and Y.V. Reddy suggested that India must maintain a foreign exchange reserve equivalent to one year's worth of import requirements.

Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry said, “India’s strong stance despite geopolitical uncertainties, prudent policy measures and vigilant monetary policy stance, have led the forex to reach the new all-time high at the level of $670 billion. This will propel India's economic growth on a higher trajectory, enhancing its standing internationally, making the country attractive to foreign investors, and fostering domestic trade and industry. Given the global macroeconomic challenges, the Reserve Bank of India would have more flexibility in handling the currency and monetary policy due to the country's significantly high foreign exchange reserves.” 

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. It was the second time in 2023 that the reserve crossed the $600 billion mark marking an upward trend in reserves for the third straight week. 

Source: Reserve Bank of India

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.