India’s foreign exchange (forex) reserves have surged to a six-month high, reaching $686.15 billion as of April 18, marking the seventh consecutive weekly increase. According to the data released by the Reserve Bank of India (RBI), the reserves grew by $8.3 billion during the week, building on the cumulative $39.2 billion rise over the previous six weeks.
Factors Driving Forex Reserves Growth
India’s forex reserves are now just $19 billion below the all-time high of $704.89 billion, set in late September. The recent growth can be attributed to the RBI’s interventions in the forex market and changes in the valuation of foreign-held assets due to fluctuations in currency exchange rates. The Reserve Bank of India has been actively managing the reserves, which are essential for stabilizing the country’s currency and supporting trade and economic activities.
Impact of Foreign Portfolio Inflows
The rise in India’s reserves has been largely supported by stronger foreign portfolio inflows into Indian equities, which in turn have supported the appreciation of the Indian rupee. During the week, the rupee gained approximately 0.8%, marking its best weekly performance since March 17. This was further aided by a softer US dollar, driven by concerns over the economic consequences of tariffs imposed by the United States.
Rupee’s Performance and Geopolitical Tensions
Despite the rupee’s notable gains during the week, it closed at 85.45 per dollar, down 0.1% from the previous week. The slight decline was linked to rising geopolitical tensions following a militant attack in India’s Jammu & Kashmir region. This escalation in geopolitical risks added uncertainty to the market and impacted investor sentiment, contributing to the rupee’s slight fall by the end of the week.
Outlook for India’s Forex Reserves and the Rupee
India’s forex reserves are now on the brink of reaching a new record, and the positive trend could continue if foreign portfolio inflows remain strong and the rupee continues to benefit from a weaker US dollar. However, the Indian currency remains vulnerable to global economic shifts, such as changes in the US dollar’s value, inflationary pressures, and geopolitical risks, all of which could impact both the rupee’s performance and the country’s forex reserves.
Conclusion
India’s forex reserves have seen a strong upward trajectory, bolstered by portfolio inflows and a strengthening rupee. While the reserves are approaching record highs, the rupee’s performance is subject to external factors like geopolitical developments and global economic shifts. Moving forward, the RBI’s management of the reserves, alongside continued foreign inflows, will be key to sustaining India’s economic stability.
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