India's forex reserves hit record $666.85 billion, driven by surging gold and foreign currency assets

India's foreign exchange reserves have surged to a record high, reaching a new peak of $ 666.85 billion, according to data from the Reserve Bank of India (RBI).

The data highlights an increase of $9.69 billion in just one week, as of 12 July, surpassing the previous high of $657.2 billion. The reserves have been rising intermittently for some time now. The RBI data reveals that India's foreign currency assets (FCA), the largest component of forex reserves, rose by $8.3 billion to $585.47 billion. Additionally, gold reserves increased by $1.2 billion, reaching $58.66 billion.

According to a recent RBI report, India's foreign exchange reserves are now sufficient to cover over 11 months of projected imports. In the calendar year 2023, the RBI added approximately $58 billion to its foreign exchange reserves. In contrast, in 2022, India's forex reserves declined by a cumulative $71 billion.

Forex reserves, or foreign exchange reserves (FX reserves), are assets held by a nation's central bank or monetary authority, typically in reserve currencies such as the US dollar, and to a lesser extent, the euro, Japanese yen, and pound sterling.

The country's foreign exchange reserves last reached an all-time high in October 2021. Much of the subsequent decline can be attributed to the increased cost of imported goods in 2022. Additionally, the relative fall in forex reserves has been linked to the RBI's market interventions, to manage the uneven depreciation of the rupee against a surging US dollar.

The RBI frequently intervenes in the market through liquidity management, including the sale of dollars, to prevent steep depreciation of the rupee. The RBI closely monitors the foreign exchange markets and intervenes only to maintain orderly market conditions by containing excessive volatility in the exchange rate, without reference to any pre-determined target level or band.