India’s foreign exchange reserves may be within striking distance of $700 billion mark

India’s foreign exchange reserves position seems to be within striking distance of the $700 billion mark, with its reserves touching an all-time high of $692.296 billion as on September 20, 2024.

With the US Federal Reserve cutting its policy rate by 50 basis points, lot of forex inflows are expected in the Indian financial markets due to the relatively higher returns.

The reserves perked up in the reporting week as foreign currency assets (FCA) and gold holdings were up by $2.057 billion and $726 million, respectively.

FCA comprise multi-currency assets that are held in multi-asset portfolios. The assets include investment in securities, deposits with other central banks and the BIS, and deposits with commercial banks overseas.

Special Drawing Rights (SDRs), which refers to India’s commitment to provide resources under the International Monetary Fund’s (IMF) New Arrangements to Borrow (NAB) and investment in SDR denominated Notes issued by IMF, was up $121 million. The Reserve Tranche Position in IMF, however, was down a shade (-$66 million).

Since March-end 2024, India’s forex reserves have increased by $45.878 billion.

In his last monetary policy statement (August 8, 2024), RBI Governor Shaktikanta Das said: “India’s foreign exchange reserves reached a historical high of US$ 675 billion as of August 2, 2024. Overall, India’s external sector remains resilient as key indicators continue to improve. We remain confident of meeting our external financing requirements comfortably.”