The foreign exchange reserves of India reached $702.8 billion on June 27 which established a nine-month peak while analysts attributed this development to rupee stability during U.S. trade policy uncertainty.
The Reserve Bank of India’s forward dollar book decreased in value as short positions decreased to $65.2 billion during May from their peak of $88.7 billion in February. The RBI now possesses enhanced flexibility to defend the rupee because its reserves have strengthened and its forward book has decreased.
The reduction of forward book size together with adequate FX reserves creates a positive outlook for the INR according to Gaura Sen Gupta who works as an economist at IDFC First Bank. The central bank allows forward contracts to expire while simultaneously using spot market transactions to neutralize any resulting liquidity issues.
The RBI now possesses strong intervention capabilities because Indian reserves have increased to nearly their highest level after reaching $624 billion in January.
