InvestorQ : What has driven Indian forex reserves to cross $500 billion in June 2020?
Arti Chavan made post

What has driven Indian forex reserves to cross $500 billion in June 2020?

Answer
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3 months ago


Recently, India’s forex reserves crossed $500 billion or half a trillion dollars for the first time. Is that comfortable or a problem of plenty? Interestingly, India has now entered the top-5 in terms of forex reserves behind China, Japan, Switzerland and Russia. Along the way, India has overtaken Taiwan, Hong Kong and Saudi Arabia. At one point of time, Saudi Arabia held more than $750 billion in forex reserves but years of weak oil prices since 2014 meant that Saudi Arabia has been forced to draw heavily on its forex reserves. This is despite the Kingdom of Saudi Arabia cutting down on welfare outlays. The question is; why exactly are India’s reserves building up so rapidly? In early 2018, forex reserves had fallen to around $370 billion. There are 3 reasons for the build up. The fall in oil import bill has compressed trade deficit by more than 50%. Secondly, NRIs continued to prefer India for remittances with the rest of the world offering either zero or negative rates of returns. Also, the RBI intervention in forex markets is down substantially and that has helped the build up.