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India's foreign exchange (Forex) reserves rose for the third-consecutive week to touch a new lifetime high of $670.86 billion as of July 19, according to the latest data released by the RBI on Friday.  

The reserves surged by $4 billion during the week after increasing by a cumulative of $14.9 billion in the preceding two weeks.

An increase in the Forex 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 (CAD) declined to $23.2 billion (0.7 per cent of GDP) during 2023-24 from $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 CAD recorded a surplus of $5.7 billion (0.6 per cent of GDP) in the January-March quarter (Q4) of 2023-24 as against a deficit of $8.7 billion (1.0 per cent of GDP) in the preceding October-December quarter of 2023-24.