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India’s foreign exchange reserves jumped by $5.16 billion to scale a lifetime high of $657.16 billion during the week ended July 5, according to RBI data released on Friday. 

The country’s forex reserves had contracted by $1.71 billion to $652 billion for the week ending on June 28 but have bounced back to resume the rising trend of previous weeks.

An increase in the foreign exchange reserves reflects strong fundamentals of the economy and gives the RBI more headroom to stabilise the rupee when it turns volatile.

A strong forex kitty enables the RBI to intervene 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.

RBI Governor Shaktikanta Das had recently said that India’s external sector remains resilient and overall the central bank remains confident of meeting the country’s external financing requirements comfortably.

India’s current account deficit declined to US$ 23.2 billion (0.7 per cent of GDP) during 2023-24 from US$ 67.0 billion (2.0 per cent of GDP) during the previous year due to a lower merchandise trade deficit which reflects a robust external balance position, according to RBI data released on June 24 this year.

The RBI data also showed that India’s current account balance recorded a surplus of US$ 5.7 billion (0.6 per cent of GDP) in the Jan-March quarter of 2023-24 as against a deficit of US$ 8.7 billion (1.0 per cent of GDP) in the preceding Oct-Dec quarter of 2023-24 and US$ 1.3 billion (0.2 per cent of GDP) the fourth quarter of 2022-23, reflecting an improvement in the country’s macroeconomic position.