India’s forex reserves jump by $7.53 billion to hit fresh record high of $675 billion; 2024 volume up by $50 billion

India's foreign exchange (forex) reserves jumped by $7.533 billion to hit a fresh record high of $674.919 billion for the week ended August 2. Reserve Bank of India (RBI) data showed on Friday that the overall kitty had dropped by $3.471 billion to $667.386 billion in the previous reporting week ended July 26. The previous record high was $670.857 billion, reached on July 18.

The forex reserves have been rising on and off for a long time now. So far, in 2024, they have risen by about $45-50 billion on a cumulative basis. The buffer of foreign exchange reserves insulates domestic economic activity from global spillovers.

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For the week ended August 2, foreign currency assets, a major component of the reserves, increased by $5.162 billion to $592.039 billion. Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the forex reserves.

Gold reserves increased by $2.404 billion to $60.099 billion during the week. The Special Drawing Rights (SDRs) were down by $41 million to $18.161 billion. In the reporting week, India's reserve position with the IMF increased by $8 million to $4.62 billion.

‘’India’s robust standing amidst global economic headwinds and uncertain geo-political scenario, backed by strategic policy measures and vigilant monetary policy stance, have led the forex to reach a record all-time high at the level of $674 billion (as of Aug. 2, 2024),'' said Sanjeev Agrawal, President, PHD Chamber of Commerce and Industry

He said this will boost India's economy on a higher growth trajectory, improve its global standing, attract foreign investments, and bolster domestic trade and industry. ‘’Given the nation's significant foreign exchange reserves, the RBI will have greater flexibility in managing currency and monetary policy,'' added Agrawal.

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India's forex reserves: Key trends

India's foreign exchange reserves are sufficient to cover over 11 months of projected imports. In 2023, the RBI added about $58 billion to its foreign exchange kitty. In 2022, India's forex kitty slumped by $71 billion cumulatively. Forex reserves, or foreign exchange reserves (FX reserves), are assets held by a nation's central bank or monetary authority.

It is generally held in reserve currencies, usually the US dollar and, to a lesser degree, the Euro, Japanese Yen, and Pound Sterling. Forex reserves declined last year, and much of the decline after that can be attributed to a rise in the cost of imported goods in 2022.

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Also, the relative fall in forex reserves could be linked to the RBI's occasional intervention in the market to defend the uneven rupee depreciation against a surging US dollar. The RBI occasionally intervenes in the market through liquidity management, including selling dollars, to prevent a steep rupee depreciation. 

The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate without reference to any pre-determined target level or band.