How India’s forex reserves rose to record highs of $689.24 billion

New Delhi: India’s foreign exchange reserves, comprising foreign currency assets, gold reserves, Special Drawing Rights and reserves position with the IMF, recorded a $5.25 billion jump to $689.24 billion in the week ending September 6, 2024. This marks a new record for India’s forex kitty which has continued to break its own record in the past few weeks. Let’s try to understand why forex reserves matter and what is driving up India’s kitty of foreign exchange.
According to the Economic Survey released in July 2024, India’s forex reserves stood at $653.7 billion in June 2024, which were deemed adequate to pay for over 10 months of imports in FY25. These reserves were also deemed adequate to pay for 98 per cent of total external debt outstanding as of end-March 2024, according to the Economic Survey.
How RBI helped to boost forex reserves
Measures taken by RBI to boost forex reserves include an expansion in India’s external borrowing limit, a rise in foreign currency non-resident deposits, and a temporary permit to lenders to raise fresh deposits, said Brickwork Ratings in an April 2024 note. Companies have also been allowed to raise their overseas borrowing cap, adding to India’s forex reserves.
Higher interest rates on NRI bank deposits as well as opening up of government securities and corporate bonds to FPI investment have added to India’s forex kitty, according to the rating agency. Brickwork Ratings underlined India’s inclusion in the JP Morgan Global Bond Index and Bloomberg Index as further forex accretive events.
ANZ’s FX strategist Dhiraj Nim in an analysis stated that India’s forex kitty has swelled also as a result of RBI’s forex market interventions to eliminate rupee volatility.
Key components of India’s rising forex reserves
Foreign currency assets and gold reserves have been the ley drivers or India’s forex kitty to record levels, according to Brickwork Ratings. RBI purchased 43 tonnes of gold so far this year, according to World Gold Council data, with 5 tonnes purchased in July.
Measured in dollar terms, gold reserves rose $129 million to $61.86 billion in the week ending September 6, 2024, according to the RBI’s weekly statistical supplement. FCA reserves rose $5,107 billion to $604.144 billion during the same period.
Importance of adequate forex reserves
Former RBI governor Bimal Jalan in a monetary and credit policy statement in 2022 said, “A sufficiently high level of reserves is necessary to ensure that even if there is prolonged uncertainty, reserves can cover the ‘liquidity at risk’ on all accounts over a fairly long period.”