India surpassed Russia after the latter’s holdings declined at a faster rate in recent weeks and as the Reserve Bank continues to hoard dollars to cushion the economy against any sudden outflows.”
The foreign exchange reserves of India have surpassed Russia’s to become the world’s fourth-largest, reported Bloomberg. As it stands, China has the largest foreign currency reserves followed by Japan and Switzerland.
India’s foreign currency holdings, which dropped $4.3 billion to $580.3 billion on March 5 per data from the Reserve Bank of India (RBI), surpassed Russia’s $580.1 billion pile.
Both economies have seen their foreign exchange reserves decline after months of rapid increase – India’s forex reserves had touched a record high of $590.185 billion in the week ended January 29, 2021. The Asian economy has now pulled ahead as Russian holdings declined at a faster rate in recent weeks and the RBI continued to hoard dollars to cushion the economy against external shocks.
The RBI has been focused on further strengthening its foreign exchange reserves with Governor Shaktikanta Das stressing the idea of emerging market central banks building reserves to prevent any sudden outflows. India’s government has also worked to cut down imports and increase exports by giving a boost to domestic manufacturing.
Last year, the reserve bank bought a net of $88 billion in the spot forex market, which helped make the rupee the worst performer among Asia’s major currencies and earned a place on a United States Treasury watchlist for currency manipulation.
India now has enough reserves to cover roughly 18 months of imports. Experts say continuous inflows by foreign portfolio investors (FPIs) into the Indian stock market, rising foreign direct investment (FDI) have boosted India’s current-account surplus over the last year.
“The healthy FX reserves position should give enough comfort to the RBI for dealing with any potential external shock-driven capital-stop or outflows in the period ahead,” Bloomberg quoted Deutsche Bank chief India economist Kaushik Das as saying.
More so, rising forex reserves hold significance for India as it will give comfort to international credit rating agencies and foreign investors that India can meet its debt obligations despite a declining fiscal outlook.