Picture Credit: Freepik.com
India’s foreign exchange reserves have crossed the $700 billion mark for the first time, positioning the country as the fourth global economy to achieve this milestone.
According to data from the Reserve Bank of India (RBI), the reserves surged by $12.6 billion in the week ending September 27, 2024. This record places India alongside China, Japan, and Switzerland in the exclusive club of nations with reserves over $700 billion.
The latest surge brings India’s total reserves to $705 billion, supported by stable oil prices and increased foreign investments in Indian stocks and bonds.
Analysts Predict Further Growth Experts at BofA
Securities forecast that India’s forex reserves could climb to $745 billion by March 2026. In a recent investor note, BofA stated, “India’s balance of payments is expected to remain in a comfortable surplus, estimated at around $40-50 billion annually.”
The RBI, under Governor Shaktikanta Das, appears focused on building a robust buffer to guard against external risks. “India’s forex reserves have grown at an exceptional rate under Governor Das, with monthly increases averaging $4.2 billion over 70 months,” BofA Securities added.
This growth has led to the accumulation of nearly $298 billion in reserves since Das took office, surpassing previous records.
Historic Journey of India’s Reserves
India’s journey to $700 billion has been marked by significant milestones. The country first crossed $100 billion in forex reserves in December 2003, and it took over three years to add another $100 billion. However, the jump from $200 billion to $300 billion occurred in just 10 months, reaching $300 billion by early 2008. Since then, the pace of accumulation has varied, with the country reaching $400 billion in over nine years.
Despite a drop in reserves from $642 billion in September 2021 to $525 billion the following year due to revaluation losses, India’s reserves have rebounded strongly.
Strength in External Financing and RBI Intervention
While addressing the Monetary Policy Committee on Wednesday, RBI Governor Das highlighted the resilience of India’s external sector. “We remain confident of meeting our external financing requirements comfortably,” he said. He noted a reversal in foreign portfolio investments, with net inflows of $19.2 billion between June and October 2024, following net outflows earlier in the year.
Foreign direct investment (FDI) also remains robust, contributing to the rise in reserves. In addition, non-resident deposits saw stronger net inflows compared to last year, further boosting India’s external financial position.
The RBI often intervenes in the forex market to mitigate volatility, buying or selling dollars to stabilize the rupee. However, larger reserves do not necessarily correlate with a stronger currency.
India’s foreign exchange reserves now stand at an all-time high of $705 billion, driven by increases in foreign currency assets and gold reserves. Foreign currency assets, the largest component of reserves, grew by $10.5 billion during the week ending September 27, while gold reserves rose by $2.2 billion to reach $65.8 billion.
As India continues to strengthen its reserve position, analysts remain optimistic about the country’s ability to weather external challenges in the coming years.
