Bank of America sees India’s forex pile reaching US$745 billion in March 2026
Growth in its foreign reserves will be driven by a balance of payments surplus due to a narrower current account deficit, analysts say
INDIA’S foreign exchange reserves will likely rise to US$745 billion by March 2026, giving the country’s central bank more potential firepower to influence the rupee, said the Bank of America.
The monetary authority “seems relaxed about holding larger foreign exchange reserves, owing to its desire to build buffers against contingent external risks”, its analysts Rahul Bajoria and Abhay Gupta noted on Friday (Oct 4).
They added that compared with other emerging markets, the adequacy of India’s reserves appeared strong, but not necessarily excessive.
India has the world’s fourth-biggest foreign reserves at US$692 billion, as rising overseas inflows into the nation’s stocks and bonds have helped the Reserve Bank of India (RBI) boost its stockpile to a record high.
The amount provides stability to the rupee against external shocks, with the RBI using its reserves to limit extreme swings in the currency hovering near a record low.
The growth in its forex stockpile will be driven by a balance of payments surplus, owing to a smaller current account deficit, the analysts said.
RBI governor Shaktikanta Das has repeatedly stressed the need to build a forex buffer to act as a shield during periods of market volatility.
Bajoria and Gupta noted that the wider daily ranges between the US dollar and rupee have recently created room for limited rupee appreciation, and higher volatility compared to over the past year.
“However, the RBI can simultaneously attain its multiple objectives of building a larger reserves buffer and maintaining currency competitiveness, while allowing limited bilateral Indian rupee appreciation,” they added. BLOOMBERG
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