Forex reserves cross $700 billion for the first time, India becomes the fourth country in the world to achieve this feat

India's foreign exchange reserves have breached $700 billion for the first time ever. According to the data released by the Reserve Bank of India, foreign exchange reserves jumped $ 12.5 billion to an all-time high of $ 704.89 billion in the week ended September 27. India's foreign exchange reserves have risen by $ 87.6 billion so far in 2024. This number has crossed the total growth of $ 62 billion of last year - 2023 - in the month of September itself.

After China, Japan, and Switzerland, India now became the fourth economy in the world to cross the $700 billion reserve mark. The country has been trying to increase its foreign exchange reserves since 2013. The trend started when foreign investors first pulled out money from the Indian market due to a weak macroeconomic scenario. That week earlier, India's forex reserves rose by $2.8 billion to $692.3 billion in the week ended September 20. According to the RBI's weekly data, foreign currency assets, a key component of the overall reserve, surged by $10.4 billion to $616 billion. FCA consists of securities and deposits denominated in foreign currencies such as the US dollar, euro, pound, and yen, reported and expressed in dollars. FCA also includes the impact of appreciation or depreciation of non-US currencies like the euro, pound and yen held in the foreign exchange reserves.

In the same week, gold reserves rose by $2 billion to $65.7 billion. Special drawing rights - SDRs - went up eight million dollars in said week to $18.547 billion. Reserve position with the IMF declined by $71 mln to $4.3 bln. It said, according to Bank of America: India's foreign exchange reserves will rise to $745 billion by March 2026, relying more on the Reserve Bank of India to give full unlimited power to the rupee.

Bloomberg quoted analysts from Bank of America, Rahul Bajoria, and Abhay Gupta, as saying, "The monetary authority is sanguine about holding large foreign exchange reserves due to its desire to build a buffer against contingent external risks." According to them, adequacy in India's foreign exchange reserves appears stronger than other major emerging markets but not necessarily in excess. This quantum gives stability to the rupee against external shocks. The RBI uses its reserves to contain undue volatility in the Indian currency, which is near record lows.

The periodic intervention in the market by the RBI, through liquidity management, comprises the selling of dollars so that any sharp depreciation in the value of the rupee does not happen. The RBI continuously watches the foreign exchange markets but intervenes only with the purpose of maintaining orderly conditions in the markets by avoiding undue volatility in the exchange rate, without keeping in mind any pre-determined target level or band.