India’s foreign exchange reserves have surpassed $600 billion, reaching their highest level in the past 15 months.

india’s foreign exchange reserves have reached a significant milestone, surpassing $600 billion for the first time since May 2022. On July 14, foreign exchange reserves reached an impressive $609 billion, a 15-month high. This remarkable achievement is due to a remarkable increase in dollar inflows into the country’s economy.

India’s forex reserves saw a remarkable surge, recording an impressive increase of $12.74 billion in just one week, marking the largest weekly uptick in four months. This surge can be attributed to two key factors. Firstly, the Reserve Bank of India (RBI) saw a rise in its holdings of US government bonds, contributing to the overall increase in reserves. Additionally, the appreciation of non-dollar currencies played a vital role in strengthening the value of India’s forex holdings.

Strategically, the RBI has invested more than two-thirds of its forex reserves in US dollars, with the rest diversified across major currencies like the euro, yen, pound, and Chinese renminbi. This diversification, along with the recent gains on the back of dollar weakness and lower US government bond yields, contributed significantly to the week-on-week rise in reserves, as stated by Gaura Sen Gupta, India economist at IDFC Bank.

This impressive growth in forex reserves has bolstered India’s economic stability and resilience. The current reserves level can now comfortably cover 11 months of imports, representing a substantial increase from 9.3 months in December 2022 and just 8.9 months in September 2022. This strengthened position reflects India’s growing financial prowess and its ability to navigate through global economic fluctuations.

Foreign investors have also shown strong interest in Indian equities in the past three months, acquiring a net $16 billion, as reported by the National Securities Depository Limited. This surge in foreign investment has enabled the central bank to bolster its reserves through strategic market purchases.

Notably, India’s forex reserves surpassed the $600 billion mark for the first time in June 2021. However, the forex market faced increased volatility following the invasion of Ukraine, prompting the central bank to intervene and stabilize the market through dollar sales. Despite this challenging period, the impact of sharp interest rate hikes in the United States temporarily affected the forex market and resulted in a significant decline in reserves. Nonetheless, India’s proactive measures and strong foreign investment inflows have continued to help navigate currency fluctuations and economic uncertainties effectively.

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