New Delhi, Aug 29: India’s foreign exchange reserves rose to a record $729.3 billion in the week ended August 21, giving the country a stronger financial cushion to deal with global economic uncertainty and volatility in the rupee.
According to the latest data from the Reserve Bank of India (RBI), forex reserves increased by $12.4 billion during the week, surpassing the earlier record of around $728.5 billion recorded in February.
The rise has been supported by strong foreign currency inflows, including deposits attracted through measures introduced by the central bank to bring more overseas funds into India. The increased inflows have strengthened the country’s external financial position.
A higher level of reserves also gives the RBI greater flexibility to respond to sharp movements in the foreign exchange market. If required, the central bank can use its reserves to manage excessive volatility in the rupee and maintain orderly market conditions.
The rupee has recovered from its recent record low but continues to face pressure from factors such as crude oil prices, global interest rates and India’s dependence on imported energy. Strong forex reserves provide an important cushion against these external pressures.
However, attracting overseas deposits also involves costs. Under the special deposit programme, the RBI has supported banks with hedging costs, allowing them to offer competitive returns to overseas customers.
The central bank recently decided to close the special diaspora deposit programme ahead of schedule after the response and inflows were stronger than expected.
For India, the record reserve level is an important sign of external financial strength. A healthy forex reserve position helps the country meet international payment obligations, manage periods of market stress and maintain confidence among investors and businesses.
With global markets continuing to remain uncertain, India’s strong reserve position provides an additional layer of protection as the economy responds to changing interest rates, currency movements and fluctuations in international crude oil prices.