India’s foreign exchange reserves soared to an unprecedented $648.70 billion as of May 17, 2024, the Reserve Bank of India (RBI) announced on Friday.
This marked a substantial increase of $4.55 billion in just one week, the largest jump in two months. Over the past three weeks, reserves have surged by a total of $6.23 billion.
The RBI attributed the rise to its strategic interventions in the foreign exchange market aimed at mitigating excessive volatility in the rupee. These interventions, along with the appreciation or depreciation of foreign assets held in the reserves, significantly impact changes in foreign currency assets.
In a notable shift, the RBI has been relying more on non-deliverable forwards (NDF) to manage rupee volatility rather than spot market interventions. This approach helps conserve foreign exchange reserves, which would otherwise be heavily drawn upon in spot market activities. Sources close to the RBI suggest that this strategy is becoming increasingly effective in stabilizing the currency.
In addition to foreign currency assets, India’s foreign exchange reserves include its reserve tranche position in the International Monetary Fund (IMF). This diversified composition of reserves strengthens the country’s ability to manage its currency and address economic challenges.
During the week corresponding to the latest foreign exchange data, the Indian rupee traded within a narrow range of 83.3250 to 83.5300 against the U.S. dollar, recording a modest weekly gain of about 0.2%. By Friday, the rupee had settled at 83.0975 against the dollar, achieving its most significant weekly gain in over five months.
The record high in forex reserves comes as a positive development for India’s economy, providing a buffer against global economic uncertainties and potential external shocks. A robust reserve position enhances the country’s ability to manage its exchange rate, fund imports, and service its external debt.
Analysts view this record as a testament to the RBI’s effective management of the country’s foreign exchange resources amidst fluctuating global financial conditions. The continued growth in reserves underscores India’s financial resilience and strategic economic planning.
As India navigates through complex global economic landscapes, the record high forex reserves offer a sense of economic stability and confidence, supporting the nation’s ongoing growth and development efforts.