The RBI allocates the dollars for specific purposes. For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $250,000 every year. The RBI uses its forex kitty for the orderly movement of the rupee.
Why RBI maintain foreign exchange reserves?
More importantly, they are needed to support, maintain confidence for central bank action, whether monetary policy action or any exchange rate intervention to support the domestic currency. It also helps limit any vulnerability because of a sudden disruption in foreign capital flows, which could happen during a crisis.
How much reserves RBI have?
Reserve Bank of India
|Seal of the RBI|
|Headquarters||Mumbai, Maharashtra, India|
|Currency||Indian rupee ( ₹ )|
|Reserves||₹3,830,997 crore (US$540 billion)|
How does RBI maintain foreign reserves?
The RBI uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens. Of late, the RBI has been buying dollars from the market to shore up the forex reserves. When the RBI mops up dollars, it releases an equal amount in rupees.