New Delhi: India’s foreign exchange reserves have surpassed Russia’s reserves to become the fourth largest in the world, as the South Asian country’s central bank continues to accumulate dollars to protect the economy from any sudden outflows.
Reserves in both countries have been mostly leveled this year after months of rapid increase. India moved forward as Russian holdings declined at a faster rate in recent weeks.
The Reserve Bank of India said Friday that India’s foreign currency holdings fell by $ 4.3 billion to $ 580.3 billion as of March 5, outpacing Russia’s cost of $ 580.1 billion.
China holds the largest reserves, followed by Japan and Switzerland at the International Monetary Fund table.
India’s reserves, which are sufficient to cover nearly 18 months of imports, are boosted by a rare current account surplus, increased inflows into the domestic stock market and foreign direct investment.
Analysts say the strong reserve position is giving foreign investors and credit rating companies more comfort that the government can fulfill its debt obligations despite worsening financial outlooks and the economy heading towards its first full-year contraction in more than four decades.
“Various reserve adequacy measures in India have improved dramatically, particularly in the past few years,” Kaushik Das, chief economist for India at Deutsche Bank, said before the latest data was released.
“The healthy foreign exchange reserves center should give the RBI enough comfort to deal with any potential shock-driven capital outflows or outflows in the coming period.”
Central bank data showed that the Reserve Bank of India bought a net $ 88 billion in the spot forex market last year. This helped make the rupee the worst performing among the major currencies in Asia last year, and earned India a spot on the US Treasury’s watchlist for currency manipulation.
A recent RBI report recommended further strengthening of foreign exchange reserves, citing fluctuations in the rupee around the time of the global outburst of 2013.
Governor Shaktikanta Das said emerging market central banks need to build reserves to prevent any external shocks, regardless of their monitoring by the United States.