India’s Foreign Exchange Reserves Show Positive Trend, Reach $595.051 Billion

India's Foreign Exchange Reserves Show Positive Trend, Reach $595.051 Billion
India's Foreign Exchange Reserves Show Positive Trend, Reach $595.051 Billion

India’s foreign exchange reserves demonstrated a positive trend as they rose by $1.853 billion to reach $595.051 billion in the week ending June 30, according to the Reserve Bank of India (RBI). This increase follows a previous decline in the overall reserves. Foreign exchange reserves encompass a diverse range of assets held by a country’s central bank, including physical currency, financial deposits, bonds, and gold, among other government securities.

In the same reporting week, the significant component of India’s foreign exchange reserves, foreign currency assets, witnessed a rise of $2.539 billion, reaching $527.979 billion. This growth in foreign currency assets reflects the impact of appreciation or depreciation of non-US currencies, such as the euro, pound, and yen, held in India’s reserves.

However, during this period, India’s gold reserves experienced a decline of $472 million, amounting to $43.832 billion, as reported by the RBI. This reduction indicates potential adjustments in the central bank’s portfolio composition or other strategic considerations.

To further internationalize the Indian rupee, the RBI-appointed committee, headed by RBI executive director RS Ratho, recently proposed a roadmap. The committee highlighted the potential of the rupee to become an international currency, citing India’s robust economic growth and resilience. The report recommends promoting the use of the rupee in international trade invoicing, settlement, and capital account transactions to enhance its global presence.

On July 7, the Indian rupee depreciated 23 paise against the US dollar, reaching a six-week low and recording its weakest performance in seven weeks. Concerns over potential interest rate hikes by the Federal Reserve and losses in Asian currencies drove this depreciation. The rupee closed at 82.74 per dollar, down from the previous close of 82.51.

The weakness of the Indian rupee can be attributed to various factors, including expectations of upcoming interest rate hikes, the strength of the US dollar, and rising crude oil prices supported by OPEC production cuts. These factors have prompted market participants to consider the potential negative impact on the rupee’s value. However, the strength of the Indian capital market has somewhat mitigated the decline of the rupee.

It is worth noting that China currently holds the largest foreign currency reserves globally.