India's forex kitty surges by $4.6 billion to $674.7 billion

Mumbai : India's foreign exchange reserves jumped by US $4.55 billion to $674.7 billion during the week ended August 16, according to the latest figures released by the Reserve Bank of India (RBI) on Friday.

On August 2, the forex kitty had soared to a lifetime high of $674.9 billion after which it declined by $4.8 billion to $670.1 billion for the week ended August 9.

In the week ended August 16, foreign currency assets, a major component of the reserves, increased by $3.6 billion to $591.6 billion, the RBI data showed.

Gold reserves increased by $865 million to $60.1 billion during the week, the RBI said.

The Special Drawing Rights (SDRs) were up by $60 million to $18.3 billion. India's reserve position with the IMF was up by $12 million to $4.65 billion during the week.

An increase in the foreign exchange reserves reflects strong fundamentals of the economy and gives the RBI more headroom to stabilise the rupee when it turns volatile. A strong forex kitty enables the RBI to intervene in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fall. Conversely, a declining forex kitty leaves the RBI less space to intervene in the market to prop up the rupee.

RBI Governor Shaktikanta Das had announced on August 8, that with the country’s foreign exchange reserves touching a historical high of $675 billion as of August 2, India’s external sector remains resilient with key indicators continuing to improve.

"We remain confident of meeting our external financing requirements comfortably," he said.

Das also said that India’s current account deficit (CAD) moderated to 0.7 per cent of GDP in 2023-24 from 2 per cent of GDP in 2022-23 due to a lower trade deficit and robust services and remittances receipts.

In Q1:2024-25, the merchandise trade deficit widened as imports grew faster than exports, he added.

The RBI chief further stated that buoyancy in services exports and strong remittance receipts are expected to keep CAD within a sustainable level in Q1:2024-25. "We expect CAD to remain eminently manageable during the current financial year," he remarked.