The Reserve Bank of India increased the country's foreign exchange reserves for the fifth consecutive week, adding to its robust forex reserves amid heavy capital inflow into the nation.
Forex reserves stood at US$564.07 billion as of Friday, up from US$562.18 billion in the previous week, the RBI said on its website today, updating data on its latest quantitative measures of reserve money and gold holdings.
Forex reserves had risen by $2.9 billion to $562.18 billion in the previous week, driven mainly by the rise in foreign currency assets, due to a rise in mark-to-market (MTM) on non-US dollar currencies.
However, during the weekend of October 21, RBI infused dollar liquidity into the system through the purchase of $1.06 billion under open market operations. The infusion was meant to absorb fund outflows ahead of the US interest rate hike amid global volatility in stock markets and growing expectations of a rate hike by the RBI next month.
"The (forex) build-up is a reflection of liquidity demand for portfolio investments and trade finance. Liquidity has been good since the US election and the subsequent expectation of a rate hike. But we have not seen any impact on the rupee," Rajkiran Rai G, former MD and CEO of Union Bank of India, told Reuters while adding that the rupee would remain stable during this period.
According to him, outflows from stocks have been matched by inflows into government bonds, which means a limited impact on forex reserves. "The markets are moving in sync with overseas markets," he added.
Analysts said that the surge in forex reserves is because the RBI has been intervening heavily to curb volatility in the currency market, which had seen a spike before and after the US elections.
However, it will take time for gains to reflect on India's foreign exchange reserves, as inflows are expected to continue into equity markets and foreign portfolio investors (FPIs) may show greater comfort levels parking cash in India's bonds.
The government is expected to garner close to $14 billion from the diaspora ahead of the Union Budget 2017–18.
In conclusion, it is vital to say that India's forex reserves have risen by $2.9 billion to $564.07 billion as of Friday, up from US$562.18 billion in the previous week. Forex reserves are driven mainly by a rise in foreign currency assets, which is due to an increase in non-US dollar assets.
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