India's foreign exchange reserves surged by a whopping $10.47 billion to scale a two-year high of $636.1 billion for the week ended March 8, the latest data released by the RBI on Friday showed.
This is the biggest jump in the country’s forex kitty since the week ended July 14, 2023. In the previous reporting week, the overall reserves had risen by $6.55 billion to $625.63 billion.
Rising foreign exchange reserves are a positive for the economy as they reflect an ample supply of dollars that help to strengthen the rupee.
An increase in the foreign exchange reserves gives the RBI more headroom to stabilise the rupee when it turns volatile.
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.
Conversely, a declining forex kitty leaves the RBI less space to intervene in the market to prop up the rupee.
The good news on the foreign exchange reserves also comes on a day when the figures on India’s exports touching an 11-month high and the decline in the trade deficit were also released.
This indicates a strengthening of the country’s external balance which augurs well for the rupee going ahead.
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