India's Forex Reserves Reach $684.8 Billion, Gold Reserves Increase by $1.2 Billion

India's forex reserves decline by $2.6 billion to $682.13 billion till Nov 1: RBI.

Gold reserves, though, part of the country's forex kitty and monitored by the central bank, increased by $1.2 billion during the week to $69.8 billion.

Increased geopolitical tensions have increased the demand for gold. The US economic sanctions have also made use of gold as a hedge. Traditionally, gold has been a safe haven and hedge for inflation. Meanwhile, even though inflation has mellowed some, gold has shot up to new highs. More than 210 per cent since 2018, the proportion of gold in the country's forex reserve has also risen.

It has stood at an all-time peak of $704.885 billion by the end of September and positioned India at the 4th position globally after China, Japan, and Switzerland in the size of its forex kitty. According to RBI, forex reserves of the country have increased overall to about $34.5 billion during this financial year itself, good enough to finance imports at 11.2 months based on the balance of payments. It evidences very good macroeconomic fundamentals of the economy.

It employs its forex reserves to control volatility in the rupee in return to hot money from the stock market which flows out when foreign investors sell shares. In case the rupee falls sharp, the RBI comes out with dollars in the market to stop it from going into free fall. That way, it keeps the Indian currency stable. Strong foreign exchange reserves make these operations a bit easier and also add up to the rupee.

Reserve Bank Deputy Governor Rabi Sankar meanwhile told a media event on Thursday that the RBI was well-equipped to handle excessive exchange rate volatility that could result as a fallout of the Donald Trump presidency. He ruled out allowing oversight rights of the Indian bond clearing platform to the European authorities, describing such a provision as sovereignty breach.