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India forex reserves reach over $600 billion, hit 15-month high

India’s foreign exchange reserves have reached a significant milestone, surging past the $600 billion mark for the first time since May 2022. As of July 14, the forex reserves stood at an impressive $609 billion, marking a 15-month high. This remarkable achievement comes against the backdrop of a notable rise in dollar inflows into the country’s economy.

The reserves witnessed an impressive increase of $12.74 billion from the preceding week, marking the largest weekly gain in four months. This surge can be attributed to two primary factors. Firstly, there was an increase in the US government bonds held by the Reserve Bank of India (RBI), contributing to the rise in reserves. The appreciation of non-dollar currencies played a significant role in bolstering the overall value of India’s foreign exchange holdings.

The Reserve Bank of India (RBI) has strategically allocated over two-thirds of its foreign currency assets in US dollars, while the remaining portion is diversified across other major currencies, including the euro, yen, pound, and Chinese renminbi.

Gaura Sen Gupta, an India economist at IDFC Bank, was quoted by Reuters as stating that a significant portion of the week-on-week increase in forex reserves was driven by revaluation gains due to dollar weakness and lower US Treasury yields.

India’s foreign exchange reserves have witnessed a remarkable upswing, enabling the country to reinforce its economic stability and resilience. The reserves have now reached a level where they can easily cover 11 months of imports, a significant increase from 9.3 months in December 2022 and just 8.9 months in September 2022. This strengthened position is a testament to India’s growing financial strength and its capacity to navigate through global economic fluctuations.

Furthermore, in the past three months, foreign investors have displayed strong interest in Indian shares, acquiring a net of $16 billion, as reported by the National Securities Depository Limited. This surge in foreign investment has provided the central bank with an opportunity to bolster its reserves by making strategic purchases from the market.

India’s forex reserves achieved a significant milestone when they first surpassed the $600 billion mark in June 2021, a remarkable feat facilitated by a surge in foreign direct investments flowing into the country.

However, the forex market experienced heightened volatility in the wake of the Ukraine invasion, necessitating the central bank to intervene and stabilize the market by selling dollars. Despite these efforts, the reserves faced challenges due to sharp interest rate hikes in the United States, which impacted the forex market and resulted in a notable reduction in reserves during that period. Despite the temporary setback, India’s proactive measures and strong foreign investment inflows continue to navigate through currency fluctuations and economic uncertainty.

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