India's forex reserves hit record $642.5 billion

India’s foreign exchange reserves rose to an all-time high of $642.5 billion during the week ended 15 March 2024 as the surge in the forex inflows continued for the third successive week.

The forex kitty had increased by $10.47 billion in the previous week to reach a 2-year high of $636.1 billion, after a $6.55 jump to $625.63 billion during the last week of February, data released by the Reserve Bank of India (RBI) showed.

The forex inflows came mainly through foreign portfolio investments in Indian equities. FPIs have bought shares worth Rs38,098 crore in the week ended 22 March, taking the total inflow to the secondary market, which include both debt and equities, to Rs51,542 crore ($6.17 billion) .

What is surprising, however, is that the Indian rupee plunged to a record low of 83.4250 against the US dollar on Friday.

This, however, need not be a sustainable level as a sudden outflow from the equity market can deplete the reserve.

It is pertinent to note that foreign institutional investors had last week, pulled out investments valued at Rs7,200 crore ($0.86 billion) from the system.

While rising foreign exchange reserves ensure ample supply of dollars and should help strengthen the rupee, this is not happening in the case of weak currencies like the India rupee.

Any small gain by the Indian currency would soon be blown over by a hardening of the US dollar against other currencies.