Mumbai: India's forex reserves hit an all-time high of $ 704.885 billion, up $ 12.588 billion as on September 27, the Reserve Bank of India data showed on Friday. This makes India the fourth economy with such high reserves.
Data showed that the biggest source of strength for this reserve build-up was the balance of payments surplus. This is mostly due to a
small current account deficit, which has been below 2 per cent of GDP for the last six years and should remain below that threshold for the next 2-3 years as well. Capital inflows added further support, both through the debt and equity channels. On top of this reserve build-up came the valuation gains, both through falling interest rates and rising gold prices which further added to the upside.
According to Rahul Bajoria, Head of India and ASEAN Economic Research at BofA Securities India, foreign reserves could rise further in the next 18-24 months, as the balance of payments is likely to remain in a comfortable surplus, at around $ 40-50 billion annually.
“The RBI seems relaxed about holding larger foreign reserves, owing to its desire to build buffers against contingent external risks. In our baseline scenario, we see foreign reserves growing to $ 707 billion by March 2025 and $ 745 billion by March 2026, with prospects of a larger war chest in the near term given falling crude oil prices and a rise in both equity and debt-related inflows,” Bajoria said.
In both FY25 and FY26, the Bank of America Securities analysts expect a balance of payments surplus of around $ 40 billion (around one per cent of GDP), with potential for even more. The analysts said that a variety of indicators suggest India still has scope to improve its reserve adequacy.
“With the balance of payments likely to remain in a healthy surplus, the RBI and government should be comfortable adding further to foreign reserves even if the cost of holding them mirrored in widening interest rate differentials between India and the US) rises.”
