India’s forex reserves continued to hit record-high levels as they rose by $11.938 billion on July 31 compared to the week before to $534.568 billion, according to the latest data put out by the Reserve Bank of India (RBI).
Foreign currency assets (FCA), which form a key component of reserves, rose by $10.347 billion to $490.829 billion. FCAs are maintained in major currencies like the US dollar, euro, pound sterling and Japanese yen.
Movement in the FCA occurs mainly on account of purchase or sale of foreign exchange by the RBI, income arising out of the deployment of foreign exchange reserves, external aid receipts of the government and revaluation of assets.
Gold, which is another component of the reserves, rose by $1.525 billion to $37.625 billion. Special drawing rights (SDR) from the IMF increased by $12 million to $1.475 billion while reserve position in the IMF increased by $54 million to $4.639 billion.
‘The central bank could have absorbed some of the FDI money in recent times. That is why we are seeing the rupee remaining stable in recent times rather than seeing a significant appreciation,’ a currency dealer said.
Over the last three weeks, rupee has remained in a tight range of 74.74-75.04 against the dollar. Since the beginning of 2020, the rupee has depreciated by 4.74%.
A BofA Securities report dated July 21 states Indian markets will likely see greater portfolio inflows going ahead as adequate forex reserves cut rupee risks.
“Finally, Indian corporates should be able to raise money abroad cheaper. On balance, we continue to expect the RBI to continue its asymmetrical forex policy of buying forex when dollar weakens and allowing depreciation if it strengthens. Our BoP estimates place FY21 RBI forex intervention at $45 billion. The RBI will likely be able to sell $50 billion to ward off any speculative attack on the rupee,” the report stated.
