New Delhi, Nov Amid persistent selling of shares in the stock market by foreign institutional investors (FII) and growing geopolitical tensions, India's foreign exchange reserves posted a $3.46 billion drop to stand at $684.8 billion in the week ended October 25, data released by the Reserve Bank of India (RBI) showed on Friday.
However, gold reserves, which form part of the foreign exchange kitty, increased by $1.08 billion to $68.53 billion during the week, according to the central bank.
There has been a surge in gold buying amid geo-political tensions. According to industry experts, gold is now acting as a hedge against US economic sanctions too, traditionally being a safe haven asset and a hedge against inflation.
Despite inflation being moderated, gold has rallied to new highs. The share of gold in the country's forex reserves has also surged more than 210 per cent since 2018.
India’s foreign exchange reserves had soared to an all-time high of $704.885 billion at the end of September taking the country to the 4th position globally after China, Japan, and Switzerland in the size of its forex kitty.
The country’s forex reserves have overall gone up by $38.39 billion in the current financial year which is sufficient to cover imports for 11.2 months based on the balance of payments, according to the RBI.
This reflects the strong macroeconomic fundamentals of the economy.
Looking ahead, India’s forex reserves are projected to grow and the strong forex will boost its economic growth trajectory by strengthening its position internationally, drawing in foreign investments, and promoting domestic trade and industry. The changes in foreign currency assets result from the central bank's actions in the forex market and fluctuations in the value of foreign assets within the reserves. According to experts, the bullion is likely to close this week in positive, amid support from safe demand, ETF buying, uncertain US election outcome, and rising bets for aggressive rate cuts from global central banks.
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