India’s foreign exchange reserves have seen a significant increase in recent weeks, rising by $1.727 billion to reach a total of $573.727 billion. This increase is a positive sign for the Indian economy, indicating that the country is in a strong position to weather any potential economic challenges.
The primary driver behind this increase in forex reserves is the steady inflow of foreign investments into the country. Foreign portfolio investors (FPIs) have been particularly active, investing heavily in Indian equities and debt. Additionally, the Reserve Bank of India (RBI) has been actively buying dollars in the spot market to build up its reserves.
This rise in forex reserves is also a positive sign for the Indian rupee, which has been under pressure in recent months due to rising oil prices and a widening trade deficit. With higher forex reserves, the RBI is better equipped to intervene in the foreign exchange market and stabilize the rupee.
Foreign currency assets, expressed in dollars, comprise the effect of appreciation or depreciation of non-US units such as the euro, pound, and yen held in foreign exchange reserves. The RBI said that gold reserves increased by $821 million to $43.7 billion. The apex bank increased the Special Drawing Rights by $68 million to $18.4 billion. The country’s reserve position with the IMF fell by $1 million to $5.23 billion in the reporting week, according to figures from the central bank.
Another benefit of India’s growing forex reserves is that it provides a cushion for the country in the event of any external economic shocks. For example, if there were to be a sudden outflow of foreign capital or a decline in global demand for Indian exports, the country would be in a better position to weather the storm with a larger reserve of foreign currency.