India’s foreign exchange reserves have surpassed the $700 billion mark for the first time, continuing a growth streak for the seventh consecutive week. According to data from the Reserve Bank of India (RBI), India’s forex reserves surged to $704.89 billion in the week ending September 27, 2024, marking a massive increase of $12.6 billion. This is the largest weekly jump since July 2023. India now joins the elite group of economies, including China, Japan, and Switzerland, that boast over $700 billion in foreign exchange reserves.
The increase in forex reserves is largely attributed to the Reserve Bank of India’s active purchase of foreign currencies, including the US dollar, and a corresponding rise in the value of the rupee. This milestone reflects India’s growing financial stability and strength in managing inflation, reducing fiscal deficits, and maintaining high economic growth.
The Road to $700 Billion
India has steadily increased its foreign exchange reserves since 2013, despite facing challenges such as inflation and capital outflows due to global economic uncertainty. In response, the RBI implemented tight monetary controls and promoted foreign investments. So far in 2024, foreign investments have surged to $30 billion, with investors pouring money primarily into local debt, driven by India’s inclusion in the prestigious JP Morgan Index.
IDFC First Bank economist Gaura Sen Gupta noted that the accumulation of adequate foreign exchange reserves plays a crucial role in reducing currency volatility. It empowers the RBI to intervene when necessary, thereby boosting investor confidence and reducing the risk of sudden capital outflows.
Rise in Rupee’s Value
Alongside the increase in reserves, the rupee has also strengthened. India’s forex reserves have increased by $87.6 billion so far in 2024, compared to an increase of $62 billion throughout 2023. This surge is a result of $7.8 billion in purchases made by the RBI last week, coupled with $4.8 billion in valuation gains.
Factors like falling US Treasury yields, a weaker dollar, and rising gold prices have bolstered the rupee, which touched 83.50 against the US dollar in the week following the fresh reserve data. The Reserve Bank of India has been closely monitoring the rupee’s movement, intervening on both sides of the market to maintain a stable trading range. This has made the rupee one of the least volatile currencies among emerging markets.
RBI Governor Shaktikanta Das, when asked about managing the volatility of the rupee, emphasized that excessive volatility would not benefit the economy. The consistent efforts of the RBI to stabilize the rupee and strengthen India’s forex reserves have contributed significantly to the country’s economic resilience.
Conclusion
India’s crossing of the $700 billion mark in foreign exchange reserves is a major milestone that reflects the country’s robust economic fundamentals and growing investor confidence. With tight control over inflation, steady economic growth, and strategic foreign investments, India is well-positioned to continue building on its forex reserves, enhancing its global economic standing.
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