India’s foreign exchange reserves cross USD 700 billion first time

New Delhi: India’s foreign exchange reserves scaled a new high again, crossing the USD 700 billion milestone.

In the week that ended on September 27, the forex reserves kitty rose USD 12.588 billion to USD 704.885 billion, as per the data released by the Reserve Bank of India (RBI) on Friday.

Last week, the kitty was at the previous high of USD 692.296 billion.

This buffer of foreign exchange reserves helps insulate domestic economic activity from global shocks.

According to the latest data from the apex bank, India’s foreign currency assets (FCA), the largest component of forex reserves, were at USD 616.154 billion.

The gold reserves are currently worth USD 65.796 billion, as per Friday’s data.

As per estimates, India’s foreign exchange reserves are now sufficient to cover over a year of projected imports.

In the calendar year 2023, India added about USD 58 billion to its foreign exchange reserves.

In contrast, India’s forex reserves saw a cumulative decline of USD 71 billion in 2022.

Forex reserves, or foreign exchange reserves (FX reserves), are assets held by a nation’s central bank or monetary authority.

Foreign exchange reserves are generally held in reserve currencies, typically the US Dollar and, to a lesser extent, the Euro, Japanese Yen, and Pound Sterling.

The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions, aiming to contain excessive volatility in the exchange rate without reference to any pre-determined target level or band.

The RBI frequently intervenes in the market through liquidity management, including the sale of dollars, to prevent a steep depreciation of the rupee. A decade ago, the Indian Rupee was one of the most volatile currencies in Asia.

However, it has since become one of the most stable. The RBI has been strategically buying dollars when the rupee is strong and selling when it is weak. A less volatile rupee makes Indian assets more attractive to investors, as they can expect better performance with more predictability.