India’s forex reserves hit record high

INDIA’S foreign exchange reserves rose for a fourth straight week to hit a record high of US$642.49 billion as of Mar 15, central bank data showed on Friday (Mar 22).

The reserves rose by US$6.4 billion in the reporting week, after rising US$20 billion in the previous three weeks.

The Indian economy is seen growing at 7.6 per cent this year, one of the fastest among major global economies. This helped draw US$20.7 billion in overseas equity flows in 2023 and US$1.85 billion so far this year. In addition, India’s inclusion on global bond indexes has drawn over US$10 billion since late September.

The Reserve Bank of India (RBI) has chosen to absorb most of these flows to avoid a sharp appreciation in the rupee, adding to its reserves, analysts said.

A large reserves pile gives the central bank the ability to manage the currency during periods of market volatility.

India’s forex reserves, including the central bank’s forward holdings, can now cover more than 11 months of imports, a nearly two-year peak.

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“India’s external metrics remain healthy with adequate level of reserves combined with low current account deficit and low external debt levels,” IDFC FIRST Bank economist Gaura Sen Gupta said, adding the current level of reserves are “more than adequate”, providing cover from external volatility.

The forex reserves were boosted by the maturity of a US$5 billion US dollar/rupee swap that matured on Mar 11.

“The rise in FX reserves was due to maturity of the RBI’s US$5 billion sell buy swap,” Sen Gupta said. “Moreover, RBI has likely made additional US dollar purchase during that week to the tune of about US$3 billion.”

Changes in foreign currency assets are caused by the RBI’s forex market intervention as well as the appreciation or depreciation of foreign assets held in the reserves.

In the week of Mar 15, the rupee fell 0.1 per cent against the US dollar and traded in a range of 82.6400 and 82.9525.

The rupee settled at a record closing low of 83.4250 on Friday, down 0.7 per cent for this week. REUTERS