Despite global economic headwinds and deepening geopolitical uncertainties, the forex reserves are at record all-time high levels and are set to cross $700 billion in FY25 sooner than expected.
According to the latest note by global investment firm Jefferies, RBI’s forex reserve is estimated to go up by a massive $53 billion to reach $700 billion in the current fiscal (FY25E). The rupee is now the most stable currency among major economies, it added.
However, the way forex reserves are surging in FY25, the $700 billion mark does not look very far. India’s forex reserves jumped $5.2 billion to a fresh all-time high of $689.24 billion (in the week ended September 6). According to the weekly RBI data, foreign currency assets (FCAs) grew by $5.10 billion to $604.1 billion.
The country is currently seeing strong domestic flows. FPI flows into debt markets have also picked up. FPIs bought equities in the Indian stock market worth Rs 16,800 crore last week, taking the total buying to Rs 27,856 crore (till September 13).
As per the NSDL data, FPIs were buyers of equity in the cash market on all days last week. In 2024, the total investments by FPIs now stand at Rs 70,737 crore to date.
According to market watchers, positive FPI flows have helped in achieving record forex levels in the country. This is set to create external sector resilience and boost the economy across sectors.
The substantial foreign exchange reserves will provide the RBI with greater flexibility in monetary policy and currency management. India’s reserve position with the International Monetary Fund (IMF) has gone up $9 million to $4.631 billion.
According to market experts, India’s strong forex will boost its economic growth trajectory by strengthening its position internationally, drawing in foreign investments, and promoting domestic trade and industry.
Meanwhile, with the inflation in the second quarter of FY25 likely to remain below the RBI forecast of 4.4 per cent, amid the cooling of food prices, the central bank may consider rate cuts in the forthcoming Monetary Policy Committee (MPC) meetings.
According to Jefferies, interest rates across the world have seen a sharp jump and a cycle reversal seems likely in the coming quarters which would create headroom for the RBI to also taper down benchmark interest rates in India.
