India’s foreign exchange reserves is likely to have crossed a new record of $600 billion in the first week of June, RBI governor Shaktikanta Das said. Officially, however, the weekly numbers released by the RBI pegged reserves at $598.2 billion as on May 28, which is also a record. India has seen an accretion of nearly $105 billon over the last year, with $5.3 billion added during the last week of May.
Das said, with reserves at this level, the central bank has enough ammunition to meet possible challenges arising out of global spillovers. The governor was referring to the possibility of large capital movements if the US starts to normalise its monetary policy in the wake of economic recovery and inflation pressures. Forex reserves are closely watched by policymakers given that it had dropped to $5.8 billion in 1991 when India had a balance of payments crisis.
In March, India had overtaken Russia as the country with the fourth-largest foreign exchange reserves, however, it has slipped to the fifth place again. China, Japan and Switzerland continue to top the list of countries ranked by forex reserves. The RBI adds to its reserves by purchasing dollars from the market. India has come under pressure from the US for not allowing the currency to appreciate. However, unlike China and other Asian countries that prevent appreciation to keep their exports competitive, the RBI intervenes to prevent volatility.
“Our forex operations are mainly driven by consideration of maintaining the stability of exchange rate, in which we have been quite successful,” said Das. “Emerging market economies have to build up their buffer and the RBI is no exception to that,” he added. India’s forex reserves ended FY21 at $579 billion, which indicates that the RBI has bought over $20 billion in nine weeks.