India’s foreign trade policy has reached a milestone in 2024, with the country’s foreign exchange (forex) reserves achieving a record high of $692.3 billion as of September 20. This growth reflects India’s strategic economic management and robust market interventions by the Reserve Bank of India (RBI).
Steady Increase in Forex Reserves
India’s forex reserves have risen for six consecutive weeks, with a recent increase of $2.84 billion in the week ending September 20. This brings the total gain over the past five weeks to $19.3 billion. The bulk of these reserves are in foreign currency assets, which surged to $605.7 billion from the previous $603.6 billion.
The steady rise in reserves is largely due to the RBI’s interventions in the forex market, where it buys and sells foreign currency to stabilize the rupee and manage its volatility. Such interventions are critical in maintaining a healthy balance amid global currency fluctuations.
Composition of the Reserves
India’s forex reserves are composed of multiple assets, including foreign currency holdings, gold, Special Drawing Rights (SDRs), and the country’s reserve tranche position with the International Monetary Fund (IMF). Gold reserves saw a notable increase, climbing to $63.6 billion from $62.9 billion in the prior week. SDRs, an international reserve asset created by the IMF, inched up to $18.5 billion, while the reserve tranche position fell slightly to $4.46 billion.
SDRs represent a claim to foreign currencies that can be utilized by IMF member countries in times of financial need. Their value is derived from a basket of major global currencies, including the US dollar, euro, and Chinese yuan, providing stability in times of economic uncertainty.
Rupee’s Strong Performance
The Indian rupee recorded its best performance of the year during this period, buoyed by a 50-basis-point rate cut from the United States Federal Reserve. Additionally, increased inflows into Indian stocks and bonds contributed to the rupee’s strengthening. The currency reached a two-month high of 83.4850 against the U.S. dollar, gaining nearly 0.4% during the week. However, by September 27, the rupee slightly declined to 83.70, posting a 0.1% loss for the week.
India’s growing forex reserves and a resilient rupee underscore the country’s strengthening foreign trade policy and economic position in 2024, helping it navigate global financial uncertainties.
(With inputs from agencies)
