India’s forex reserves jump $6.6 billion to hit five-month high

The RBI’s Weekly Statistical Supplement also indicated that the country’s gold reserves, a key component of the forex holdings, increased by $519 million to $77.8 billion.

This marks the fourth consecutive week of growth in forex reserves, following a $4.5 billion rise to $658.8 billion in the previous week ending March 21.

The recent uptrend reverses the earlier decline caused by revaluation and the RBI’s interventions in the forex market to curb rupee volatility.

In September 2024, India's forex reserves had reached an all-time high of $704.885 billion.

A robust foreign exchange reserve strengthens the rupee against the US dollar, benefiting the economy.

With the latest increase, the rupee has gained further stability.

Higher forex reserves indicate strong economic fundamentals and provide the RBI with greater flexibility to manage currency fluctuations.

A well-stocked reserve enables the central bank to intervene in the forex market, releasing dollars when needed to prevent a sharp depreciation of the rupee.

In contrast, dwindling reserves limit the RBI’s ability to stabilise the currency.

Meanwhile, India's merchandise trade deficit shrank to a three-year low of $14.05 billion in February, down from $22.99 billion in January, as exports remained steady while imports declined, according to the Ministry of Commerce and Industry.

This suggests a strengthening external sector despite global economic uncertainty driven by geopolitical tensions.

Merchandise exports grew by 1.3 per cent to $36.91 billion in February, up from $36.43 billion in January, while imports fell by 16.3 per cent to $50.96 billion from $59.42 billion in the previous month.