India's Forex Reserves Surpass $600 Bn, Reach 15-Month High

India has achieved a significant milestone in its foreign exchange reserves, surpassing the USD 600 billion mark for the first time since May 2022. As of 14 July, the reserves reached an impressive USD 609 billion, the highest in 15 months. This remarkable achievement can be attributed to a notable increase in dollar inflows into the Indian economy.

The reserves saw an impressive surge of USD 12.74 billion in just one week, the largest weekly gain in four months. This increase was primarily influenced by two factors. Firstly, the Reserve Bank of India (RBI) acquired more U.S. government bonds, contributing to the rise in reserves. Additionally, the appreciation of non-dollar currencies also played a significant role in bolstering India's overall foreign exchange holdings.

The RBI has prudently allocated over two-thirds of its foreign currency assets in U.S. dollars, while diversifying the remaining portion across other major currencies like the euro, yen, pound, and Chinese renminbi.

According to Gaura Sen Gupta, an India economist at IDFC Bank, a substantial part of the week-on-week increase in forex reserves can be attributed to revaluation gains due to dollar weakness and lower US Treasury yields.

This surge in India's foreign exchange reserves has strengthened the country's economic stability and resilience. The reserves now provide coverage for 11 months of imports, a significant improvement from 9.3 months in December 2022 and 8.9 months in September 2022. This demonstrates India's growing financial strength and its ability to navigate global economic fluctuations.

In the past three months, foreign investors have shown strong interest in Indian shares, acquiring a net of USD 16 billion, as reported by the National Securities Depository Limited. This surge in foreign investment has given the central bank an opportunity to bolster its reserves through strategic purchases from the market.

India first achieved the milestone of surpassing USD 600 billion in forex reserves in June 2021, driven by a surge in foreign direct investments flowing into the country.

Despite facing volatility in the forex market due to the Ukraine invasion, the central bank intervened and stabilised the market by selling dollars. The reserves did encounter challenges during that period due to sharp interest rate hikes in the United States, impacting the forex market and resulting in a temporary reduction in reserves. However, India's proactive measures and strong foreign investment inflows have continued to help navigate currency fluctuations and economic uncertainty.