India’s Forex Reserves Jump $5.17 Billion To $696.66 Billion; Near All-Time High - Why Are Forex Reserves Important?

India’s foreign exchange reserves rose by $5.171 billion to reach $696.656 billion for the week ending June 6, according to the latest data released by the Reserve Bank of India (RBI). This sharp weekly rise brings the reserves close to the all-time high of $704.89 billion, which was recorded in September 2024.

RBI Governor Sanjay Malhotra said the current forex kitty is strong enough to cover 11 months of India’s import needs and 96% of the country’s external debt. This highlights the strong buffer India has to deal with global uncertainties.

Foreign exchange reserves are assets held by a country’s central bank in foreign currencies. These include US Dollars, Euros, Japanese Yen, and Pound Sterling. Reserves play a crucial role in maintaining financial stability, supporting the currency, and managing international payments.

The largest portion of India’s forex reserves is foreign currency assets (FCA). As per RBI data, FCA stood at $587.687 billion. Gold reserves, the second-largest component, currently stand at $85.888 billion.

Also Read: Gold Price Hits Rs 1 Lakh Again — Will It Rise Above it?

Central Banks Have Increased Gold Holdings

In recent years, central banks around the world have increased their gold holdings due to its status as a safe-haven asset. India has followed this trend. The share of gold in India’s forex reserves has nearly doubled since 2021. This shows how important gold has become in protecting national wealth during uncertain global times.

India’s reserves have shown a healthy rise over the past two years. In 2023, the country added $58 billion to its reserves. This was a big turnaround from 2022, when reserves had fallen by $71 billion. In 2024 so far, India has added a little over $20 billion to its forex holdings.

The RBI plays an active role in maintaining the stability of the Indian Rupee. It buys US dollars when the Rupee is strong and sells them when the Rupee weakens. This helps control excessive volatility in the currency market and keeps inflation in check.

Why Are Forex Reserves Important?

Forex reserves are assets held by a country's central bank, mostly in global currencies like the US Dollar, Euro, Yen, and Pound Sterling. These reserves are vital for maintaining financial stability, managing exchange rates, and covering international payments.

The RBI uses these reserves strategically—buying dollars when the Indian Rupee is strong and selling them when the Rupee weakens—to prevent excessive volatility in the currency. As global uncertainty continues and gold remains a preferred hedge, India's increasing forex cushion reflects strong economic fundamentals and sound monetary management by the central bank.