Business

India’s Foreign Exchange Reserves See Significant Increase; Marking Highest Gain In Five Months

Indian foreign exchange reserves continued their upward momentum, rising by USD 6.596 billion to reach USD 665.396 billion as of March 28.

This marks the highest weekly gain in nearly five months, according to data from the Reserve Bank of India (RBI).

The substantial increase follows a period of decline in reserves and reflects renewed confidence in India’s economic stability.

Cumulative Increase Of USD 20.1 Billion Over Three Weeks

Over the past three weeks, India’s forex reserves have increased by a total of USD 20.1 billion, with approximately USD 6.6 billion added in the latest reporting week.

Experts attribute the earlier declines in reserves to shaken investor confidence in Indian equity markets, which have now begun to recover.

The latest surge suggests a positive shift in investor sentiment.

Also Read: Equity Market Outlook For The Upcoming Week Driven By Domestic And Global Factors

As of March 28, RBI data reveals that gold reserves totaled USD 77.793 billion, while foreign currency assets amounted to USD 565.014 billion.

This indicates a healthy composition of India’s foreign exchange holdings, with the majority still held in foreign currency assets, primarily the US Dollar.

Indian Rupee Appreciates Against US Dollar

During the same period, the Indian Rupee appreciated by 0.6% against the US Dollar, reflecting increased foreign investment confidence in the Indian stock markets.

The Rupee’s strength is seen as a positive indicator of investor optimism, which has likely contributed to the rise in forex reserves.

The Reserve Bank of India often intervenes in the currency market to manage liquidity and prevent sharp depreciation of the Rupee.

When the Rupee weakens, the RBI sells dollars to stabilize the currency. Conversely, when the Rupee strengthens, the central bank buys dollars to manage excess liquidity.

Forex Reserves Adequate To Cover Imports For 10-11 Months

Experts estimate that India’s current foreign exchange reserves can cover approximately 10 to 11 months of projected imports.

This level of reserves is considered healthy and provides a strong buffer against external economic shocks.

In 2023, India added around USD 58 billion to its foreign exchange reserves, a significant increase compared to the USD 71 billion decline experienced in 2022.

The positive trend continued into 2024, with reserves increasing by just over USD 20 billion so far this year.

What Are Indian Foreign Exchange Reserves?

A nation’s central bank or monetary authority holds foreign exchange reserves (FX reserves) to support its currency and facilitate international trade.

Central banks primarily hold these reserves in reserve currencies such as the US Dollar, with smaller portions in the Euro, Japanese Yen, and Pound Sterling.

Overall, India’s growing foreign exchange reserves and the appreciation of the Rupee signal a positive outlook for the economy, with investors regaining confidence in the country’s financial stability.

Richa Kaushik

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