India’s Forex Reserves Jump by $5.17 Billion, Nearing an All-Time High

India’s foreign exchange reserves saw a big boost last week, rising by $5.17 billion to touch $696.66 billion, according to the latest figures released by the Reserve Bank of India (RBI). This surge brings the reserves just shy of their all-time high of $704.88 billion, recorded in September 2024.

The increase came mainly from higher foreign currency assets and stronger gold reserves. Here’s the breakup -

• Foreign Currency Assets, which include India's holdings in major global currencies such as the US dollar, the Euro, and the GBP, increased by $3.47 billion and now stand at $587.69 billion.
• Gold holdings also contributed significantly, increasing by $1.6 billion to reach $85.89 billion.
• There was a smaller rise of $102 million in Special Drawing Rights (SDRs) with the International Monetary Fund, and India’s IMF reserve position inched up by $14 million, taking the total to $4.4 billion.

India’s forex reserves have been climbing steadily in recent months. Back in January 2023, the reserves had fallen to around $537.7 billion, but they have been recovering well thanks to improved trade flows, a stable rupee, and consistent capital inflows. An overall positive market sentiment since then has also helped in keeping the reserves buoyant.

To put things into perspective, the reserves were at about $642 billion in June 2023 and around $600 billion the year before. With this current level, India gains the ability to cover over 11 months of imports, which is a key indicator of financial safety and economic strength.

A strong reserve cushion works well in favour of India, in more ways than one:

• TheRBI has more flexibility to step in and manage sudden fluctuations in the rupee.
• It boosts investor confidence in the Indian economy, especially when the situation around the globe is uncertain.
• A strong forex reserve will help India meet most of its external debt obligations without relying on foreign aid or borrowing.

According to experts, the reserves currently cover more than 96 percent of India’s external debt, which gives policymakers some breathing room amid global market swings.

RBI Governor Sanjay Malhotra recently said that India’s external position remains strong and that the central bank is equipped to handle any volatile outcomes. He added that the RBI would continue to monitor global developments and use the reserves carefully to protect the country’s financial stability.

India is now just $8 billion short of breaking its all-time forex reserve record. Whether that happens in the coming weeks will depend on how global markets behave, including movements in oil prices, foreign investments, and trade performance.

All said and done, for now, the growing reserves are a reassuring sign that India’s economy is standing on solid ground and is well-prepared to face any financial storm that might come its way.

(The writer is a seasoned Banker and Mortgage Specialist working for India’s largest loan distributor company and occasional political commentator.)