India’s Forex Reserves Strong Enough to Cover 11 Months of Imports, Says RBI

With reserves at $652.9 billion, India’s forex buffer remains robust, ensuring stability amid global economic uncertainties.

Mumbai, December 24: India’s foreign exchange reserves are robust enough to cover over 11 months of imports and approximately 96% of external debt outstanding as of end-June 2024, according to the Reserve Bank of India (RBI).

In its latest bulletin, the central bank revealed that forex reserves have increased by $6.4 billion during the current fiscal year, reaching $652.9 billion as of December 13, 2024.

Key Highlights from the RBI Bulletin:

• Forex Reserves Position: $652.9 billion as of December 13, 2024
• Import Coverage: Over 11 months
• External Debt Coverage: About 96%
• Foreign Currency Assets (FCA): $562.576 billion

The bulletin emphasized that India’s forex reserves remain sustainable and resilient, reflecting strong reserve adequacy metrics.

Reasons Behind Recent Declines:

Despite this overall positive outlook, forex reserves have experienced a decline in 10 out of the past 11 weeks, hitting a multi-month low. The reserves, which peaked at $704.89 billion in September, have been declining mainly due to the RBI’s active intervention to curb sharp Rupee depreciation and maintain currency market stability.

Significance of Forex Reserves:

1. Economic Stability: A substantial forex buffer shields India from global economic shocks.
2. Rupee Management: The RBI intervenes in forex markets to control excessive volatility, maintaining the Rupee’s appeal among global investors.
3. Liquidity Management: RBI uses reserves for managing liquidity in financial markets.

India’s Strategic Reserve Management:

Over the past decade, the Indian Rupee has transitioned from being one of Asia’s most volatile currencies to one of its most stable ones. The RBI has adopted a prudent forex strategy, buying dollars when the Rupee is strong and selling when weakness sets in, reinforcing India’s position as an attractive investment destination.

In 2023, India added around $58 billion to its forex reserves, a stark contrast to the $71 billion cumulative decline in 2022.

The Road Ahead:

As global economic uncertainties persist, India’s forex reserves continue to serve as a critical safety net, ensuring financial and macroeconomic stability.