India’s foreign exchange reserves surged by $4.55 billion, reaching a new lifetime high of $648.7 billion during the week ended May 17, according to the latest RBI data released on Friday. This marks the third consecutive week of growth in the country’s forex reserves, reflecting positively on the macroeconomic fundamentals. A robust supply of dollars helps strengthen the rupee, which is crucial for the economy.
The forex reserves had previously increased by $2.56 billion to $644.15 billion during the week ended May 10, following a rise of $3.66 billion for the week ended May 3. India’s foreign exchange reserves had earlier touched a lifetime high of $648.562 billion in April. However, they declined for three weeks in a row by $10.6 billion as the RBI actively intervened in the market to buy dollars and stabilize the rupee.
Increased foreign exchange reserves provide the RBI with more leverage to stabilize the rupee during periods of volatility. The RBI intervenes in the spot and forward currency markets by releasing more dollars to prevent the rupee from depreciating sharply. Conversely, a declining forex kitty limits the RBI’s capacity to support the rupee.
Currently, India’s forex reserves, including the central bank’s forward holdings, can cover more than 11 months of imports, marking a two-year high. RBI Governor Shaktikanta Das recently highlighted the record foreign exchange reserves as a testament to the strength of the Indian economy. “Building a strong buffer in the form of substantial forex reserves is our prime focus, which will aid us when the economic cycle turns,” he remarked during the first monetary policy review of the current financial year that began on April 1.
This substantial increase in forex reserves is a positive indicator for business finance and the stock market, as it ensures greater economic stability and investor confidence.
