India’s forex reserves have crossed the $700 billion mark for the first time, increasing by $12.6 billion during the week ended September 27, according to data released by the Reserve Bank of India (RBI). With this milestone, India becomes the fourth economy in the world to surpass $700 billion in foreign reserves, joining China, Japan, and Switzerland.
The increase of $12.6 billion is also the largest weekly addition since July 14, 2023. In comparison, the overall reserves had grown by $2.8 billion to $692.3 billion in the previous reporting week. Stable oil prices and inflows into the nation’s stocks and bonds have boosted the foreign exchange reserves to $705 billion.
Analysts at BofA Securities predict that India’s reserves could reach $745 billion by March 2026, as the country’s balance of payments is likely to remain in a comfortable surplus, estimated at around $40-50 billion annually. The monetary authority “seems relaxed about holding larger forex reserves, owing to its desire to build buffers against contingent external risks,” wrote BofA Securities in an investor note on Friday.
India’s reserves first crossed $100 billion in December 2003, taking more than three years to add the next $100 billion. However, the third $100 billion (from $200 billion to $300 billion) was achieved in less than one year, with reserves surpassing $300 billion on February 29, 2008. The increase from $200 billion to $300 billion was the fastest, occurring in about ten months, while it took more than nine years to rise from $300 billion to $400 billion, according to data sourced from Bloomberg.
The accretion of reserves has been remarkable, particularly under the current RBI governor. According to BofA Securities, India’s foreign reserves have increased at the fastest pace under Governor Shaktikanta Das, swelling by $4.2 billion a month over an extended period of 70 months, with almost $298 billion accumulated since he took charge. This eclipsed the previous record of $3.3 billion under former governor Y.V. Reddy.
However, after peaking at $642 billion in September 2021, the reserves dropped to $525 billion within the following year, primarily due to revaluation losses. The main source of strength for this reserve build-up is the balance of payments surplus, the foreign brokerage noted. They added that India’s reserve adequacy appears strong compared to other major emerging markets, though not necessarily excessive.
Generally, the RBI intervenes in the foreign exchange market to prevent undue volatility in the currency. To mitigate higher volatility in the rupee, the central bank often buys and sells currency in the market. However, larger forex reserves do not necessarily indicate a stronger rupee; the local currency ended Friday’s session near a record low of 83.98 against the US dollar.
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