India’s Forex Reserves Surge to $616 Billion, Highest in Nearly 2 Years

Dhaneshwar Prasad

India’s foreign exchange reserves surged to $616 billion during the week ended December 15th, marking the highest level in 20 months, according to data from the Reserve Bank of India (RBI). The reserves rose by $9.1 billion over the previous week, underpinned by robust dollar purchases by the central bank as it continues to rebuild reserves.

Forex Reserves Reach Milestone on RBI Interventions

The increase in forex reserves to the landmark $600 billion figure comes on the back of proactive dollar buying interventions by the RBI throughout the current financial year. Since April, the central bank has purchased over $37.5 billion to bolster the country’s war chest of reserves.

The RBI has been buying dollars from the market in a calibrated manner to rebuild reserves which had declined to $531 billion in mid-October 2021 from a peak of $642 billion in September 2021. The drawdown was due to RBI’s interventions to stabilize the rupee exchange rate against surging US dollar.

Highest Level Since February 2022

At over $616 billion, India’s foreign exchange kitty is at its highest level since February 2022. The current reserves provide cover for more than 12 months of imports and is equivalent to over 9 months of the country’s total external debt.

The rise in forex reserves will provide RBI with enhanced ability to prevent volatility in exchange rate and help maintain macroeconomic stability amid external headwinds such as slowing global growth and rising interest rates in advanced economies.

Key Drivers of Forex Reserve Growth

  • RBI’s dollar buying to rebuild reserves
  • Higher valuation gains on Euro, Pound and Yen holdings as US dollar weakens
  • Jump in foreign direct investments
  • Robust inflow in banking capital and money markets

The steady accretion to forex reserves this fiscal year has been driven by RBI’s proactive interventions in the market but also supported by higher portfolio inflows and revival in foreign direct investments as global investors regain confidence in India’s growth outlook.

Outlook for Further Accumulation

With inflation easing domestically, experts believe RBI has scope to continue accumulating dollars to bolster reserves buffers further. Moderating global commodity prices also provides room for such interventions.

Moreover, the recent appreciation of Euro, Pound and Yen versus the greenback has resulted in revaluation gains on RBI’s holdings in these currencies. This could permit additional dollar buying by the central bank.

The milestone $600 billion reserves mark underscores the RBI’s ability to safeguard macroeconomic stability through prudent foreign exchange interventions. With inflation cooling and geopolitical tensions easing, India’s forex reserves may continue surging towards the previous all-time high in coming quarters.

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Former Sony professional turned multi-business owner and stock investor, Dhaneshwar leverages his MBA to produce market, IPO and biz content and personal investments on
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