It’s an exclusive club of 4!
India can now boast of being in an exclusive club of only four global economies with a forex reserve of in excess of $ 700 billion besides China, Japan and Switzerland. This milestone is a result of the ten-year strategy aimed at developing the forex reserves: in 2013 foreign investors left the country due to deteriorated macroeconomic environment. Thereafter, improved inflation performance, higher economic growth, and a decline in fiscal and current account shortfalls have opened up large FDI inflow and witness solid accumulation of reserves.
Foreign inflows have reached $30 billion this year, largely driven by investments in local debt, after India’s inclusion in a key J.P. Morgan index. The RBI has played an active role, purchasing $4.8 billion in dollars last week to boost reserves, while valuation gains of $7.8 billion—thanks to declining U.S. Treasury yields, a weaker dollar, and rising gold prices—contributed to the overall increase.
Surpassing previous numbers
India’s forex reserves have grown by $87.6 billion in 2024, already exceeding the $62 billion rise for the entire previous year. Adequate reserves are crucial for reducing currency volatility, giving the RBI the ability to intervene when necessary. Gaura Sen Gupta, an economist at IDFC First Bank, noted that strong reserves not only stabilize the currency but also enhance investor confidence, reducing the risk of sudden capital outflows.
The rupee strengthened past 83.50 against the dollar during the week corresponding to the latest data, prompting the RBI to bolster its reserves further. For months, the central bank has managed the rupee’s trading range to keep it stable, making it one of the least volatile emerging market currencies. RBI Governor Shaktikanta Das emphasized that minimizing volatility in the rupee benefits the overall economy.
