(Photo : PIB)

• India's foreign exchange reserves fell by $2.163 billion, while gold reserves rose by $1.786 billion in the week ending October The rise in gold reserves is a strategic response to the current geopolitical climate, serving as a hedge against US economic sanctions.
• The share of gold in India's foreign exchange reserves has surged more than 210 per cent since 2018, indicating its growing importance in the country's financial strategy.
• Despite the recent drop in foreign exchange reserves, experts project that the reserves will continue to grow, boosting India's economic growth trajectory.

India's foreign exchange reserves have experienced a significant drop, falling by $2.163 billion to stand at $688.267 billion in the week ending October 18, according to data released by the Reserve Bank of India (RBI). This decline comes amidst persistent selling by foreign institutional investors (FII) and escalating geopolitical tensions.

However, it's not all gloom as the country's gold reserves have seen an increase. The central bank reported that gold reserves rose by $1.786 billion to $67.444 billion during the same week. This surge in gold buying is not a random occurrence but a strategic move in response to the current geopolitical climate.

Industry experts have noted that gold is now playing a crucial role as a hedge against US economic sanctions. Traditionally, gold has been viewed as a safe haven asset and a store of value, especially during times of economic uncertainty.

Gold's Growing Importance in India's Financial Strategy

Despite inflation being moderated, gold has rallied to new highs, indicating its growing importance in the country's financial strategy. The share of gold in the country's foreign exchange reserves has surged more than 210 per cent since 2018. This significant increase is a testament to the strategic role gold is playing in India's foreign reserves strategy.

The previous week had seen the foreign exchange reserves drop by $10.746 billion to $690.43 billion for the week ending October 11. This was a significant decrease from the all-time high of $704.885 billion recorded at the end of September.

For the week ending October 18, the Special Drawing Rights (SDRs) were down by $68 million to $18.271 billion. The country's reserve position with the International Monetary Fund (IMF) was also down by $16 million to $4.316 billion.

The Future of India's Foreign Exchange Reserves

Despite these fluctuations, the future of India's foreign exchange reserves looks promising. Experts project that the reserves will continue to grow, and this strong forex will boost India's economic growth trajectory. This will be achieved by strengthening its position internationally, drawing in foreign investments, and promoting domestic trade and industry.

The changes in foreign currency assets result from the central bank's actions in the forex market and fluctuations in the value of foreign assets within the reserves. The bullion is likely to close this week in positive, amid support from safe demand, ETF buying, uncertain US election outcome, and rising bets for aggressive rate cuts from global central banks.

Historically, India has always maintained a robust foreign exchange reserve. The country joined the ranks of three other countries - China, Japan, and Switzerland - which have crossed the $700 billion threshold in reserves. This achievement is a testament to the country's strong monetary policy stance, which has created confidence among trade and industry and attracted foreign investments amid geopolitical vulnerabilities.