The increase of $12.6 billion is also the largest weekly addition since July 14, 2023. By comparison, total reserves had increased by $2.8 billion to $692.3 billion in the previous week. Stable oil prices and capital inflows into the country’s stocks and bonds have increased foreign exchange reserves to $705 billion.
Analysts at BofA Securities predict that India’s reserves could reach $745 billion by March 2026, as the country’s balance of payments is likely to remain in a comfortable surplus, estimated at around $40-50 billion. dollars per year. The monetary authority “seems relaxed about holding larger foreign exchange reserves, given its desire to build reserves against contingent external risks,” BofA Securities wrote in a note to investors on Friday.
India’s reserves first surpassed $100 billion in December 2003, and it took more than three years to add the next $100 billion. However, the third $100 billion (from $200 billion to $300 billion) was achieved in less than a year, with reserves exceeding $300 billion on February 29, 2008. The The increase from $200 billion to $300 billion was the fastest and occurred in about ten months. , while it took more than nine years to go from $300 billion to $400 billion, according to Bloomberg data.
The buildup of reserves has been notable, particularly under the current RBI governor. According to BofA Securities, India’s foreign exchange reserves have increased at the fastest pace under Governor Shaktikanta Das, rising by $4.2 billion a month over an extended period of 70 months, with nearly $298 billion amassed since he took office. post. This eclipsed the previous record of $3.3 billion under former governor YV Reddy’s government.
However, after peaking at $642 billion in September 2021, reserves fell to $525 billion the following year, mainly due to revaluation losses. The main source of strength for this accumulation of reserves is the balance of payments surplus, said the foreign brokerage. They added that India’s reserve adequacy appears strong compared to that of other major emerging markets, although not necessarily excessive.
Generally, the RBI intervenes in the foreign exchange market to prevent undue volatility of the currency. To mitigate the increased volatility of the rupee, the central bank usually buys and sells currencies in the market. However, higher foreign exchange reserves do not necessarily indicate a stronger rupee; The local currency ended Friday’s session near a record low of 83.98 against the US dollar.
Also read: India’s foreign exchange reserves rise by $12.58 billion to surpass $700 billion for the first time
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