Mumbai: India’s foreign exchange reserves surged by $2.56 billion to reach $644.15 billion during the week ending May 10, according to the latest data released by the Reserve Bank of India (RBI) on Friday.
This marks the second consecutive week of expansion for India’s forex reserves, following a $3.66 billion increase to $641.59 billion in the previous week ending May 3.
In April, India’s foreign exchange reserves had reached a record high of $648.562 billion before declining for three consecutive weeks by $10.6 billion, as the RBI engaged in active market intervention to purchase dollars aimed at stabilizing the rupee.
RBI Governor Shaktikanta Das recently highlighted the significance of these record reserves, emphasizing their role in fortifying the Indian economy. “Our primary objective is to build a robust buffer in the form of substantial forex reserves, which will provide support during economic downturns,” he remarked during the unveiling of the first monetary policy review of the current financial year beginning April 1.
Increasing foreign exchange reserves are beneficial for the economy as they indicate ample dollar supply, which strengthens the rupee. Higher reserves also provide the RBI with greater flexibility to stabilize the rupee during periods of volatility. The RBI typically intervenes in the spot and forward currency markets by injecting additional dollars to prevent sharp depreciation of the rupee.
Conversely, a decrease in forex reserves limits the RBI’s ability to intervene effectively, potentially weakening its ability to support the rupee in turbulent times.
India’s forex reserves, including the central bank’s forward commitments, now cover more than 11 months of imports, marking a two-year high in import cover.
