Forex reserves top $700 bn, India becomes 4th country to cross this mark

Since then, stricter control on inflation, higher economic growth as well as narrower fiscal and current account deficits have helped draw in foreign funds, boosting reserves.

 

Foreign inflows hit $30 billion so far this year, led mainly by investments in local debt after they were included in a key J.P. Morgan index.

 

“Adequate FX reserves reduces currency volatility since RBI has adequate firepower to intervene if needed,” Gaura Sen Gupta, economist at IDFC First Bank, said.

 

“Moreover it adds to investor confidence which reduces the risk of sudden capital outflows.”

 

India’s forex reserves have ballooned by $87.6 billion so far in 2024, already more than the near-$62 billion increase over the whole of last year.

 

The increase last week was spurred by $4.8 billion in dollar purchases by the RBI, and $7.8 billion in valuation gains, according to Sen Gupta.

 

The valuation gains were due to the decline in U.S. Treasury yields, a weaker dollar and the rise in gold prices, she said.

In the week corresponding to the latest reserves data, the rupee strengthened past 83.50 to the dollar, likely spurring the RBI to step in to shore up its reserves.

 

For several months, the RBI has intervened on both sides of the market to keep the rupee in a narrow trading range, which has made it the least volatile among emerging market currencies.

 

RBI Governor Shaktikanta Das, on being questioned on the rupee’s lack of volatility last month, said that higher volatility did not benefit the economy.

First Published: Oct 04 2024 | 5:35 PM IST