Forex Reserves Surge: RBI Achieves $700 Billion Milestone

Forex Reserves Surge: RBI Achieves $700 Billion Milestone

Mumbai: The Reserve Bank of India's foreign exchange reserves rose by $12.5 billion, reaching a record high of $704.8 billion for the week ending September 27, according to the latest central bank data. This surge in forex reserves largely results from the RBI's net dollar purchases, economists noted, rather than just currency valuation effects.

The significant increase is driven by robust foreign investment in local equities, complemented by inflows from the Indian government bonds being integrated into the JP Morgan Emerging Market Index. FPIs injected $11.1 billion into Indian stocks in September, while investment in equities surged with >$2 billion into government bonds via the fully accessible route.

According to Gaura Sengupta, chief economist at IDFC First Bank, RBI net purchased $7.8 billion last week, with the remainder attributed to valuation gains due to moderated US bond yields and persistent dollar weakness. High reserves position India as an attractive investment destination, allowing for enhanced comfort in a market bolstered by solid foreign exchange reserves.

Anubhuti Sahay, head of India economics research at Standard Chartered Bank, mentioned that India's ample reserves provide a cushion against foreign exchange outflows, ensuring that the impact on INR remains mitigated compared to other currencies, thanks to RBI's intervention strategies.

Nonetheless, a larger reserve does not automatically translate to a stronger rupee, acting instead as a crucial buffer against market volatility. As stated by Bank of America Securities, the RBI's current stance suggests a preference for a stable to slightly depreciated INR, indicating no immediate change in strategy amid the recent US dollar fluctuations.