According to the most recent data issued by the RBI on Friday, India’s foreign exchange (Forex) reserves increased for the third consecutive week to reach a new lifetime high of $670.86 billion as of July 19.
After rising by a total of $14.9 billion during the previous two weeks, the reserves increased by $4 billion during the course of the week.
Strong economic fundamentals are reflected in a rise in foreign exchange reserves, which also provides the RBI additional leeway to stabilize the rupee when it becomes volatile.
In order to stop the rupee from plunging into free collapse, the RBI can interfere in the spot and forward currency markets by issuing additional dollars when the Forex kitty is strong.
On the other hand, a diminishing foreign exchange reserves less room for the RBI to engage in the market to support the rupee.
Recently, RBI Governor Shaktikanta Das expressed confidence that the government can easily meet its external finance needs, citing the resilience of India’s foreign sector.
According to RBI data released on June 24 of this year, India’s current account deficit (CAD) decreased to $23.2 billion (0.7 percent of GDP) during 2023–24 from $67.0 billion (2.0 percent of GDP) during the previous year.
This decline was attributed to a lower merchandise trade deficit, which reflects a robust external balance position.
According to the RBI data, India’s CAD had a $5.7 billion (0.6 percent of GDP) surplus in the January–March quarter (Q4) of 2023–24 as opposed to a $8.7 billion (1.0 percent of GDP) deficit in the previous quarter (October–December) of 2023–24.
