New Delhi, Sept 15
Notwithstanding challenges to the world economy and growing geopolitical unrest, foreign exchange reserves are at all-time highs and are predicted to surpass $700 billion in FY25 ahead of schedule.
Global investment firm Jefferies recently released a report estimating that the RBI’s foreign exchange reserves will increase by a staggering $53 billion to reach $700 billion in the current fiscal year (FY25E). It also said that the rupee is now the most stable currency among the big economies.
The $700 billion goal does not appear too far, nevertheless, given the rate at which foreign exchange reserves are rising in FY25.
In the week ending September 6, India’s foreign exchange reserves increased by $5.2 billion to reach a new record high of $689.24 billion. The foreign currency assets (FCAs) increased by $5.10 billion to $604.1 billion, as per the weekly figures released by the RBI.
Strong domestic flows are being observed in the nation. FPI inflows into the debt markets have increased as well. FPI purchases on the Indian stock market last week were Rs 16,800 crore, bringing the total purchases to Rs 27,856 crore (till September 13).
According to NSDL data, FPIs purchased shares in the cash market every day of the previous week. As of 2024, foreign portfolio investors have made a total of Rs 70,737 crore in investments.
Positive foreign direct investment (FDI) flows have reportedly contributed to the nation’s record highs in FX trading. This is expected to strengthen the economy across all sectors and build resilience in the external sector.
The significant foreign exchange reserves will provide the RBI more leeway in managing its currency and monetary policy. India now has $4.631 billion in reserves with the International Monetary Fund (IMF), an increase of $9 million.
Experts in the market predict that India’s robust foreign exchange will accelerate economic growth by fortifying the country’s standing abroad, luring in foreign capital, and fostering homegrown business and trade.
In the meanwhile, given that food prices have cooled and inflation in the second quarter of FY25 is likely to stay below the RBI’s prediction of 4.4%, the central bank may decide to lower interest rates at the upcoming Monetary Policy Committee (MPC) meetings.
According to Jefferies, there has been a significant increase in interest rates globally, and a cycle reversal appears imminent in the upcoming quarters. This would provide the RBI flexibility to reduce benchmark interest rates in India as well.
