FOREX RESERVES CLIMBS TO AN ALL-TIME HIGH OF $689.24 BILLION

NEW DELHI: India's foreign exchange reserves have been on an upward trajectory lately, reaching multiple record highs in recent months. The forex reserves reached $689.235 billion on September 6 after increasing $5.2 billion from a week earlier, as per the recently released data by the Reserve Bank of India.

India's foreign currency assets (FCA), the largest component of the forex reserves, reached $604.1 billion after increasing $5.1 billion from a week earlier. Additionally, the country's gold reserves are presently at $61.988 billion.

Current projections indicate that India's foreign exchange reserves are sufficient to cover approximately one year's worth of projected imports. In the year 2023, India has added around $58 billion to its foreign exchange reserves. However, the previous year, 2022, saw a total decline of $71 billion in the country's forex reserves.

Foreign exchange reserves, also known as FX reserves, are assets maintained by a country's central bank or monetary authority. These reserves are typically held in reserve currencies, with the US Dollar being the most common, followed by the Euro, Japanese Yen, and Pound Sterling. Forex acts as a buffer to safeguard, protecting the domestic economy from global economic turbulence.

The RBI plays a crucial role in monitoring the foreign exchange markets, intervening only to ensure orderly market conditions. The central bank aims to manage excessive volatility in the exchange rate without targeting any predetermined level or band. To prevent a sharp depreciation of the rupee, the RBI often intervenes in the market through liquidity management measures, such as selling dollars.

Over the past decade, the Indian Rupee has undergone a remarkable transformation, evolving from one of the most volatile currencies in Asia to one of the most stable. This change can be attributed to India's growing economic strength and the RBI's effective management strategies.

The RBI employs a strategic approach, buying dollars when the rupee is strong and selling when it is weak. This intervention helps to smooth out significant fluctuations in the rupee's value, contributing to its overall stability. As a result, the less volatile rupee makes Indian assets more attractive to investors, as they can anticipate better performance with greater predictability.