India witnessed a significant surge in its foreign exchange reserves, soaring by $6.55 billion to reach $625.63 billion for the week ending March 1, as per the latest data disclosed by the RBI on Friday. This follows a preceding week's uptick where the reserves had climbed by $2.98 billion, reaching $619.07 billion by February 23.
The escalating foreign exchange reserves signify a favorable outlook for the economy, indicating an abundant influx of dollars that bolsters the strength of the rupee. A bolstering of foreign exchange reserves enables the RBI to fortify the rupee's stability, particularly during periods of volatility.
To maintain stability, the RBI intervenes in both spot and forward currency markets, injecting additional dollars to counteract any downward pressure on the rupee and prevent it from plummeting uncontrollably.
Conversely, a sharp depletion in the country's forex reserves constrains the RBI's capacity to intervene effectively in the market to support the rupee's value.
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