Economy

India’s forex reserves may have crossed $600 billion milestone: RBI Governor

RBI Governor Shaktikanta Das while announcing the Monetary Policy on Friday said that India’s foreign exchange reserves could exceed $600 billion. He said that the Reserve Bank of India (RBI) is actively engaged in both buying and selling in the foreign exchange market and its various segments.

“The strength of the financial system is critical to fighting the pandemic. The exchange rate remains stable despite global spillover. Foreign exchange reserves have risen to $598 billion. We are within striking distance of reaching $600 billion on foreign exchange reserves,” RBI Governor Shaktikanta Das said.

Governor Das further said that after a risk-free period of layoffs in April-May, capital flow prospects in India are improving again. While these flows reduce external financing barriers, they also provide volatility in financial markets and asset prices, while creating unwanted and unintended fluctuations in liquidity that can worsen monetary policy stance.

India’s foreign exchange reserves increased by $21.2 billion (as of May 28) to $598.2 billion in 2021-22, Governor Das further announced, adding that India’s foreign exchange reserves could exceed $600 billion.

This has necessitated a countervailing two-way intervention by the Reserve Bank in the spot, futures and forward markets to stabilize financial market and liquidity conditions so that monetary policy maintains its domestic orientation and independence to pursue national objectives.

“Thus, the Reserve Bank is actively engaged in both buying and selling in the foreign exchange market and its various segments. The success of these efforts is reflected in the stability and orderliness of market conditions and in exchange rates despite large global spillovers,” Governor Das said. “In the process, the accumulation of reserves strengthens the country’s balance sheet.”

Also, the Monetary Policy Committee (MPC) unanimously voted to keep the Repo Rate unchanged at 4% and maintain a lenient stance. The Reverse Repo Rate has been retained at 3.35%, the MSF (Marginal Standing Facility) Rate at 4.25% and the Bank Rate at 4.25%.

Governor Das said, “The MPC was of the view that policy support is needed from all stakeholders at this juncture to achieve the growth momentum that was evident in the second half of 2021 and to nurture the reforms once it has taken root.”

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