RBI’s forex reserves poised to exceed $700 billion sooner than expected in FY25

RBI data reveals foreign currency assets grew by $5.10 bn to total $604.1 bn

Despite global economic challenges and escalating geopolitical uncertainties, India’s foreign exchange reserves are set to surpass $700 billion in FY25 sooner than previously anticipated. According to a recent report by global investment firm Jefferies, the Reserve Bank of India’s (RBI) forex reserves are projected to increase by $53 billion, reaching this milestone within the current fiscal year.

As of the week ending September 6, India’s forex reserves surged by $5.2 billion to a record high of $689.24 billion. Weekly data from the RBI revealed that foreign currency assets (FCAs) grew by $5.10 billion to total $604.1 billion.

The increase in reserves is attributed to strong domestic financial flows and rising foreign portfolio investments (FPIs). Last week, FPIs invested Rs.16,800 crore in Indian equities, bringing their total investment to Rs.27,856 crore as of September 13. Data from the National Securities Depository Limited (NSDL) indicates that FPIs were active buyers of equity throughout the week, with 2024’s total investments now standing at Rs.70,737 crore.

Market analysts suggest that these positive FPI flows have contributed significantly to the record forex reserves, enhancing India’s external sector resilience and boosting various economic sectors. The substantial reserves will afford the RBI increased flexibility in monetary policy and currency management. India’s reserve position with the International Monetary Fund (IMF) also saw an increase of $9 million, reaching $4.631 billion.

Experts believe that the strong forex reserves will bolster India’s economic growth trajectory by enhancing its international standing, attracting foreign investments, and supporting domestic trade and industry. Additionally, with inflation in the second quarter of FY25 expected to remain below the RBI’s forecast of 4.4 percent due to easing food prices, the central bank may consider reducing interest rates in future Monetary Policy Committee (MPC) meetings.

Jefferies notes that the global interest rate environment has shifted significantly, suggesting a potential reversal in interest rate cycles in the coming quarters. This shift could provide the RBI with the opportunity to lower benchmark interest rates in India, aligning with broader global trends.

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