India’s foreign exchange reserves surged by USD 5.171 billion to reach USD 696.656 billion for the week ending June 6, according to the latest data released by the Reserve Bank of India (RBI) on Friday. The current forex level brings India closer to its all-time high of USD 704.89 billion, recorded in September 2024. The significant increase signals a strong external position for the country amid global financial uncertainties.
After the latest monetary policy meeting, RBI Governor Sanjay Malhotra confirmed that India’s current foreign exchange reserves are sufficient to cover approximately 11 months of the country’s imports. Malhotra also highlighted that the reserves can cover nearly 96 per cent of India’s external debt. This solid buffer strengthens the RBI’s ability to manage external shocks and currency volatility effectively.
Detailed Breakdown Of India’s Forex Reserves
According to the RBI’s data, foreign currency assets (FCA), which form the largest chunk of India’s forex reserves, stood at USD 587.687 billion. Gold reserves, another critical component, amounted to USD 85.888 billion. The RBI’s strategic accumulation of gold reflects a global trend among central banks to increase gold holdings as a financial safeguard. The share of gold in India’s forex reserves has nearly doubled since 2021.
Gold Gains Prominence In Forex Strategy
Central banks worldwide, including India’s RBI, have been steadily adding gold to their reserves as a hedge against global uncertainties. The RBI’s gold accumulation strategy has significantly strengthened its forex composition. India’s gold reserves have grown notably since 2021, reinforcing the central bank’s diversification approach. This move aligns with the broader trend of global central banks favouring gold as a reliable store of value.
In 2023, India added approximately USD 58 billion to its forex reserves, following a sharp decline of USD 71 billion in 2022. In the current year, forex reserves have already increased by over USD 20 billion, showcasing a stable and positive accumulation trend. This steady rise in reserves underlines India’s improved balance of payments and the RBI’s proactive foreign exchange management.
RBI’s Strategic Interventions in Forex Market
India’s forex reserves, mainly held in US dollars, with smaller shares in Euros, Japanese Yen, and Pound Sterling, play a vital role in maintaining currency stability. The Reserve Bank of India actively manages these reserves to control rupee fluctuations. The RBI strategically buys dollars when the rupee is strong and sells them when the rupee weakens. This hands-on approach helps the central bank maintain liquidity, curb sharp currency swings, and protect the rupee from excessive appreciation or depreciation, ensuring stability in the foreign exchange market.
(With Inputs From ANI)
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