We are consciously building forex reserves: RBI governor – Economy News

The Reserve Bank of India (RBI) is consciously building foreign exchange reserves in accordance with the prevailing market conditions, governor Shaktikanta Das said in the post monetary policy press conference on Friday.

“The endeavour to build reserves continues because it acts as a buffer against future risks, especially in a situation when the cycle turns and there is significant outward flow of dollars,” he said, adding that this approach adds to the strength of the national balance sheet.

India’s foreign exchange reserves rose $2.9 billion to reach an all-time high of $645.6 billion as of March 29. Earlier, forex reserves rose $140 million to $642.6 billion in the week ended March 22.

“Latest data on various external vulnerability indicators suggest improved resilience of India’s external sector. We remain confident of meeting our external financing requirements comfortably,” he said.

On Friday, the RBI decided to keep the repo rate unchanged at 6.5%.

The RBI is building gold reserves as a part of its forex reserve deployment. Typically, the central bank intervenes in the market through liquidity management, including selling dollars, with an aim to prevent a sharp depreciation in the rupee.

Latest data from the RBI showed that foreign currency assets rose $2.4 billion to $570.6 billion in the week ended March 29. Gold reserves rose $673 million to $52.2 billion. Special drawing rights fell $73 million to $18.1 billion. Reserve position in the international monetary fund fell $2 million to $4.7 billion.

The Indian rupee has remained largely range-bound as compared to both its emerging market peers and a few advanced economies during 2023-24. “As compared to the previous three years, the rupee exhibited the lowest volatility in the previous financial year. Here, the relative stability of the rupee reflects India’s sound macroeconomic fundamentals, financial stability and improvements in the external position,” Das said in his statement.

In fact, the rupee depreciated by 1.4% against the US dollar in 2023-24, much lower than emerging market peers like Chinese yuan, Thailand’s baht, Indonesian rupiah and Vietnamese dong among others.

“It has always been the priority of the Reserve Bank to ensure stability of the Indian rupee. I have myself stated it on a number of occasions,” Das said in the press conference.

Following the RBI’s policy announcement, rupee gained 0.18% or 15 paise to 83.29.

“A weak dollar throughout the day offered support, but it was mainly positive comments from the RBI governor about the stronger Indian economy that bolstered the rupee’s resilience in the face of geopolitical tensions,” Jateen Trivedi, VP research analyst, LKP Securities, said.

“With elections looming, rupee volatility is expected to persist, especially as the dollar’s trend remains uncertain,” he added. Going ahead, the rupee is expected to be in the range of 83.15-83.55.