Mumbai: Reserve Bank of India (RBI) governor Raghuram Rajan is going all out to build up the nation’s foreign-exchange reserves as he seeks to augment the rupee’s defences.

The stockpile grew by $4.2 billion in the week to 1 April, the most since the period ended 1 May, to an unprecedented $359.76 billion, RBI data showed Friday. The reserves surged as Rajan bought dollars to take advantage of $4.1 billion of inflows into stocks, the biggest in three years, that unwound some of the outflows in January and February.

Rajan is boosting reserves to counter any volatility in outflows amid slowing growth in China and prospects that the Federal Reserve will consider raising US interest rates. The rupee, down 0.4% this year in Asia’s worst performance, slumped to a record in August 2013 as indications the US would curtail monetary stimulus spurred investors to pull back from emerging markets.

“With flows coming back into the market, the RBI has been there and buying at every dip," said Rohan Lasrado, Mumbai-based head of foreign-exchange trading at RBL Bank Ltd. “Speculators who see that the RBI has the firepower will not try to depreciate or take advantage of the situation, compared to earlier times when reserves were low and India saw outflows."

The rupee rose 0.1% to 66.43 per dollar in Mumbai, according to prices from local banks compiled by Bloomberg. The rupee rallied 3.3% in March, the biggest jump since September 2013, as overseas investors returned to India’s stock market.

Under Rajan’s leadership, currency reserves have swelled from a three-year low in September 2013 as he spurred inflows by offering discounted currency swaps to banks. Foreign funds increased holdings of local debt by ₹ 2,200 crore in March, the biggest increase in five months, data from the National Securities Depository Ltd show.

The yield on notes due January 2026 fell three basis points to 7.42%, the lowest closing level in a week, according to prices from the RBI’s trading system. Bloomberg

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