New Delhi: Despite global economic headwinds and rising geopolitical uncertainties, foreign exchange reserves are at record high levels and are projected to surpass $700 billion in FY25 earlier than expected.
According to the latest note from global investment firm Jefferies, the RBI’s foreign exchange reserves are estimated to rise by $53 billion to $700 billion in the current fiscal year (FY25E). The rupee is now the most stable currency among major economies, it added.
However, going by the rise in forex reserves in FY25, the $700 billion mark does not seem too far away. India’s forex reserves rose by $5.2 billion to a new all-time high of $689.24 billion (in the week ended September 6). According to the RBI’s weekly data, foreign exchange assets (FCA) grew by $5.1 billion to $604.1 billion.
The country is currently witnessing strong inward flows. Foreign direct investment flows into debt markets have also picked up. Last week, foreign investors bought shares worth Rs 16,800 crore in the Indian stock market, taking the total purchases to Rs 27,856 crore (up to September 13).
According to NSDL data, foreign investors bought shares in the spot market every day last week. In 2024, the total investments by foreign investors stand at Rs 70,737 crore so far.
According to market observers, positive FDI inflows have helped achieve record levels of foreign exchange in the country, which will build resilience in the external sector and boost the economy across all sectors.
Significant foreign exchange reserves will provide the Reserve Bank of India with greater flexibility in monetary policy and currency management. India’s reserve position with the International Monetary Fund (IMF) has increased by $9 billion to $4,631 billion.
According to market experts, India’s strong exchange rate will boost its economic growth trajectory by strengthening its position internationally, attracting foreign investment and promoting domestic trade and industry.
Meanwhile, with inflation in the second quarter of FY25 likely to remain below the RBI’s forecast of 4.4 per cent amid cooling food prices, the central bank may consider rate cuts in the upcoming Monetary Policy Committee (MPC) meetings.
According to Jefferies, interest rates across the world have seen a sharp rise and a reversal of the cycle seems likely in the coming quarters, which would create scope for the RBI to cut benchmark interest rates in India as well.
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