The country's foreign exchange reserves surged by $2.56 billion to $644.15 billion by the week ended on May 10, according to the latest data released by the Reserve Bank of India (RBI) on Friday.
This is the second consecutive week that the country's forex reserves have surged, following a preceding gain of $3.66 billion, which pushed the total to $641.59 billion for the week ended on May 3.
In April, India's foreign exchange reserves had touched a record high at $648.562 billion, but later declined for three weeks consecutively by $10.6 billion. The drop had been due to the RBI's aggressive intervention in the market, buying dollars to stabilise the rupee.
RBI Governor Shaktikanta Das has stressed that the record-high foreign exchange reserves underscored the Indian economy's resilience. “It is our prime focus to build a strong buffer in the form of a substantial quantum of forex reserves which will help us when the cycle turns,” he said while announcing the first monetary policy review for the current financial year, which began on April 1.
An accretion in foreign exchange reserves is good for the economy as it reflects an ample supply of dollars, strengthening the rupee. A strengthened reserve gives the RBI more room to intervene and stabilise the rupee in times of volatility.
This is because the RBI intervenes in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fall.
On the other hand, a falling forex kitty leaves the RBI with lesser space to intervene in the market to prop up the rupee.
India's forex reserves, including the central bank's forward holdings, can now cover more than 11 months of imports, a two-year high.
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