The country's forex reserves rose to $303.67 billion as of March 28 from $298.64 billion in the previous week, the RBI said on Friday, the highest since the week ended Nov. 29, 2013, according to Thomson Reuters data.
The Reserve Bank of India had been widely expected to build up its reserves after the country was one of the emerging countries worst hit during intense global market volatility last year because of its record high current account deficit.
The rupee slumped to a record low in late August, sparking India's biggest market turmoil since a balance of payments crisis in 1991. The RBI had to sell dollars to defend the rupee, sending reserves to a more than three-year low in September 2013.
Conditions have swiftly changed, however, as the rupee is now trading at eight-months highs after India sharply reduced its current account deficit, thanks to RBI measures to raise loans abroad and provide dollars directly to oil companies, as well as government curbs on gold imports.
The reserves must have risen due to a combination of intervention by the RBI and repayment of swaps by oil companies," said A. Prasanna, economist at ICICI Securities Primary Dealership Ltd. The Indian rupee rose 1.6 percent in the week ended March 28, breaching the 60-mark for the first time in eight months on the back of robust foreign fund inflows.
Foreign investors have been heavy buyers of India debt and shares totalling a net $10.3 billion so far this year on expectations of stable government after a general election and signs of an improving economic recovery.
RBI Governor Raghuram Rajan said in an interview with the Mint newspaper published on Thursday that the central bank considered 55 to the dollar too strong a level, considering factors like inflation, competitiveness and productivity.
"Going forward I expect RBI to keep intervening since flows are expected to be strong into India in anticipation of stable government," Prasanna said.