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India becomes the fourth largest economy in the world
After China, Japan and Switzerland, India is the fourth economy in the world to cross the $700 billion reserve mark. The country has been increasing its foreign exchange reserves since 2013. At that time, foreign investors had withdrawn their investments due to weak economic fundamentals. Since then, tight controls on inflation, high economic growth and reduction in fiscal and current account deficits have helped attract foreign investors, increasing reserves.
Foreign investment has reached 30 billion dollars
Foreign investment has reached $30 billion so far this year, mainly due to investment in domestic debt, which is included in the leading JP Morgan index. Gaura Sen Gupta, economist at IDFC First Bank, said adequate foreign exchange reserves reduce currency volatility as the RBI has enough power to intervene if needed. Additionally, it increases investor confidence, thereby reducing the risk of sudden capital outflows.
increase in value of rupee
India's foreign exchange reserves have increased to $87.6 billion so far in 2024, higher than last year's full-year increase of $62 billion. According to Gaura Sen Gupta, last week's rise was due to RBI's dollar purchases of $7.8 billion and valuation gains of $4.8 billion. He said the rupee's strengthening was due to fall in US treasury yields, weak dollar and rise in gold prices.
Instability does not benefit the economy
The rupee breached the 83.50 level against the dollar during the week after the latest reserves data, possibly indicating RBI steps to increase its reserves. For several months, the Reserve Bank of India has intervened on both sides of the market to keep the rupee within a tight trading range, making it the least volatile among emerging market currencies. Last month, when asked about reducing volatility in the rupee, RBI Governor Shaktikanta Das had said that more volatility does not benefit the economy.