Foreign exchange reserves grew by $2.4 billion from the previous week to touch a life-time high of $381.2 billion as on June 2. Reserves have grown 5.8% since the beginning of the year, and have touched record levels four times since April, on the back of aggressive dollar buying by the RBI.
The central bank has been buying dollars on a daily basis, both in the spot market as well as in the forward market, to limit the appreciation of the local currency, which has been gaining steadily since the beginning of the year.
Since the beginning of the year, the rupee has gained 5.9% against the dollar. On Friday,it closed at 64.24 against the dollar.Among other factors, strong demand for the local currency from foreign portfolio investors looking to invest in Indian assets has caused the rupee to appreciate. FPIs have bought Indian shares and bonds worth around $20.17 billion so far in 2017. Given India’s low current account and fiscal deficits, and the advantage it offers in terms of interest rate differential, traders expect the inflows to continue in the near-term. Foreign currency assets, the largest component of the foreign exchange reserves, grew to $357.3 billion from $354.5 billion in the previous week.