India’s foreign exchange reserves rose $2.759 billion to $623.20 billion in the week ended December 29, 2023. The reserves are now at the highest level in the last 21 months.
The reserves perked up mainly on the back of two components – foreign currency assets (FCA) and gold holdings were up by $1.869 billion and $853 million, respectively, during the reporting week.
FCA comprise multi-currency assets that are held in multi-asset portfolios. The assets include investment in securities, deposits with other central banks and the BIS, and deposits with commercial banks overseas.
Special Drawing Rights (SDRs), which refers to India’s commitment to provide resources under the International Monetary Fund’s (IMF) New Arrangements to Borrow (NAB) and investment in SDR denominated Notes issued by IMF, nudged up $38 million. The Reserve Tranche Position in IMF, however, was down a shade (-$2 million).
Since March-end 2023, India’s forex reserves have increased by $44.751 billion.
India Ratings and Research (Ind-Ra), in a recent report, said flows in the capital account are estimated to improve to $73.8 billion in FY24 from $58.9 billion in FY23.
As a result, there would be a net addition of $29.8 billion in the forex reserve in FY24 (excluding cross currency valuation gain/loss).
The rating agency expects this to help the rupee to average 83.05/USD in FY24, and the RBI’s intervention in the forex market to keep a lid on the rupee volatility.