The foreign exchange reserves of India recently jumped $4.2 billion, touching what seemed to be their record high of $360 billion for the week ended last April 1, 2016; this is according to the weekly statistical report made by the Reserve Bank of India.
“The Reserve Bank of India has been buying dollars taking advantage of the fact that the rupee has appreciated almost 3%, giving an opportunity for the central bank to buy cheaper dollars in the currency market,” said the founder of the foreign risk solutions firm IFA Global, Abishek Goenka.
The Appreciation of the Indian Rupee
The value of the Indian rupee has been increasing while there have been improving dollar inflows to the country into the equity and debt markets. During the entire month of March, Rs 21,143 crore came to the equity markets. By the first week of April, Rs 7,625 crore was going into the debt and equity markets through several foreign institutional investors.
What High Dollar Reserves mean for India
High dollar reserves means that India has improved and improving capabilities for paying import products. It gives the Reserve Bank of India an opportunity to intervene in cases where there is currency rundown, as well as facilitate better rating all over the world.
“We have plenty of reserves to ensure that there is no undue volatility. We are preparing for the worst,” says Raghuram Rajan, the governor of the Reserve Bank of India, during a teleconference after the central bank cut the policy report rate by 25 basis points.
The Reserve Bank of India have been buying dollars since last week even as rupee continues to strengthen, thereby hitting an over four-month high of 66.07 against the dollar on Tuesday.
“In the wake of modest current account gap and healthy appetite for India, capital flows are likely to remain strong and this would prompt RBI to continue to absorb dollars and build reserves,” says Shubhada Rao, the chief economist for Yes Bank in Mumbai.