India's foreign exchange reserves surged by $4.55 billion to touch a new lifetime high of 648.7 billion mark during the week ended May 17, according to the latest data released by the RBI on Friday.
This is the third consecutive week during which the country's forex kitty has expanded which augurs well for the macroeconomic fundamentals of the economy as an ample supply of dollars helps to strengthen the rupee.
The country's forex reserves had increased by $2.56 billion to $644.15 billion during the week ended May 10 and had recorded $3.66 billion rise for the week ended May 3.
India's foreign exchange reserves had earlier touched a lifetime high of $648.562 billion in April after which they had declined for three weeks in a row by $10.6 billion as the RBI actively intervened in the market to buy dollars to stabilise 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.
India's forex reserves, including the central bank's forward holdings, can now cover more than 11 months of imports, which is a two-year high.
RBI Governor Shaktikanta Das recently referred to the record foreign exchange reserves as a reflection of the strength of the Indian economy.
"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 remarked while unveiling the first monetary policy review of the current financial year that began on April 1.
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