With growing economy, India has 4th largest forex reserves after China, Japan, Switzerland

India’s economy is making new records every day. While there was a time when India’s economy was considered a part of the ‘Fragile Five’. But India’s rise from the “Fragile Five” to the fastest-growing major economy is an example for other developing countries.

Today, India has not only become the fifth-largest economy in the world but has also set a new record in terms of foreign exchange reserves. For the first time in history, India’s foreign exchange reserves have reached above USD 700 billion.

According to the Reserve Bank of India, India’s foreign exchange reserves increased by USD 12.588 billion in a week to reach an all-time high of USD 704.885 billion in the week ending September 27. However, the forex figures slumped from the peak in the last month.

It is likely that the recent drop in reserves is due to RBI intervention to arrest a sharp depreciation in the rupee. The high buffer of foreign exchange reserves helps insulate domestic economic activity from global shocks.

As per estimates, India’s foreign exchange reserves are now sufficient to cover about or over a year of projected imports. As per estimates, India’s foreign exchange reserves are now sufficient to cover over a year of projected imports.Forex reserves, or foreign exchange reserves (FX reserves), are assets held by a nation’s central bank or monetary authority.Foreign exchange reserves are generally held in reserve currencies, typically the US Dollar and, to a lesser extent, the Euro, Japanese Yen, and Pound Sterling.

The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions, aiming to contain excessive volatility in the exchange rate without reference to any pre-determined target level or band.

The RBI frequently intervenes in the market through liquidity management, including the sale of dollars, to prevent a steep depreciation of the rupee. A decade ago, the Indian rupee was one of the most volatile currencies in Asia.

However, it has since become one of the most stable. The RBI has been strategically buying dollars when the rupee is strong and selling when it is weak. A less volatile rupee makes Indian assets more attractive to investors, as they can expect better performance with more predictability.