Country’s foreign exchange reserves surged by $12.59 billion to hit an all-time high of $704.885 billion in the week ended September 27, the Reserve Bank of India (RBI) data showed.
With this, the country becomes the fourth economy to have foreign exchange reserves over $700 billion.
In the reporting week, the foreign currency assets (FCA), a large component of the overall reserves, gained by $10.46 billion to $616.154 billion, the RBI’s weekly data showed.
FCA are maintained as a multi-currency portfolio comprising major currencies, such as, US dollar, Euro, Pound sterling, Japanese yen, and are valued in terms of US dollars.
Gold reserves also rose by $2.184 billion to $65.796 billion.
RBI has been building forex reserves to create a buffer against any global spillovers.
“The biggest source of strength for this reserve build-up is the balance of payments surplus. This is mostly due to a small current account deficit, which has been below 2 per cent of GDP for the last six years and should remain below that threshold for the next 2-3 years as well,” said Rahul Bajoria, Head of India and ASEAN Economic Research, BofA Securities India.
According to Karur Vysya Bank’s Head (Treasury) VRC Reddy, the increase in forex reserves was supported by robust foreign institutional investor (FII) inflows into equity and debt, partly driven by the inclusion in the JP Morgan bond index.
Additionally, the appreciation of the Euro, GBP, and other major currencies has also contributed to the increase in reserves, he said.
BofA Securities’ Bajoria sees foreign reserves growing to $707 billion by March 2025 and $745 billion by March 2026, with prospects of a larger war chest in the near term given falling crude oil prices and a rise in both equity and debt-related inflows.
