India's foreign exchange reserves hit new peak of $651.5 billion

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India’s foreign exchange reserves increased by $4.83 billion to touch a historic high of $651.5 billion as of May 31, Reserve Bank of India Governor Shaktikanta Das said in his recent monetary policy statement.

On May 24, the country’s forex reserve was reported at $646.6 billion.

Governor Das expressed confidence that the central bank was well-positioned to meet the country’s external financing requirements comfortably.

“Touching a new milestone, India’s foreign exchange reserves reached a historical high of US$ 651.5 billion as on May 31, 2024. India’s external sector remains resilient and the key external vulnerability indicators continue to improve. Overall, we remain confident of meeting our external financing requirements comfortably,” he said.

In the post-policy press conference, Governor Das addressed concerns about inflows resulting from JP Morgan’s bond index inclusion, stating that the central bank is well-prepared to handle them.

“The RBI has a number of instruments. We have managed it in the past. We will manage it this time also. So, no worries on that score,” he said.

 

Around $25 billion passive inflows are expected in the government bond market on the back of inclusion.

Das said in his statement that in 2023, India retained its position as the most attractive destination for greenfield foreign direct investment (FDI) in the Asia-Pacific region.

While gross FDI remained robust in 2023-24, net FDI moderated. Additionally, external commercial borrowings (ECBs) and non-resident deposits recorded higher net inflows compared to the previous year.

Foreign portfolio investment (FPI) flows surged in 2023-24, with net FPI inflows reaching $41.6 billion. However, since the beginning of 2024-25, foreign portfolio investors have turned net sellers in the domestic market, resulting in net outflows of $5.0 billion as of June 5.

In September 2023, JP Morgan had announced it will include government papers, issued by the RBI under the Fully Accessible Route (FAR), in its widely tracked GBI-EM. The inclusion process will start from June 28 and be phased over a 10-month period with 1 per cent weight included each month until March 31, 2025.

Indian bonds will have 10 per cent weight, similar to China.