India's forex reserves hit record high at $372.7 billion

BY PRATIK BHAKTA  & GAYATRI NAYAK, ET BUREAU | UPDATED: MAY 06, 2017

Mumbai: India’s foreign exchange reserves reached a record high last week according to data released by the Reserve Bank of India, reaching $372.7 billion rising almost $1.6 billion for the week ended April 28. 

The previous high was at $371.2 billion which was reported on September 9 of last year. 

Strong inflows of foreign funds into Indian markets have resulted in resurgence in the valuation of the rupee against the dollar, as the RBI has not been entirely able to mop up the dollar inflows. 

Market sources said that the RBI could be slowly running out of instruments to deal with the excess liquidity generated out of strong inflows. 

“The RBI has been using the MSS (Market Stabilisation Scheme) window aggressively,” said Abheek Barua, chief economist at HDFC Bank. “But there is a limit to which this tool can be used.” 

The regulator is also using OMO (Open Market Operations) to manage liquidity as the proposed SDF (Standard Deposit Facility) is yet to become a reality, he said. 

MSS is a liquidity management tool of the RBI through which the regulator sucks out excessive liquidity out of the system through issuance of securities like Treasury Bills on behalf of the government. 

Also, OMO is another such instrument of buying and selling of government securities in the open market in order to control the amount of cash in the banking system. 

Market sources said that while the inflows have been extremely strong over the last few months, causing excessive liquidity in the economy, latest numbers show a moderation in investments in the debt market. 

“There will be some correction in the market as valuations are currently looking stretched,” said Barua. 

According to data from NSDL, the year 2017 has seen foreign investors pumping in Rs 40,345 crore into Indian equities and Rs 50,538 crore into the debt market. 

Riding high on foreign funds, the Bombay Stock Exchange scaled a record high of 30,133 on April 26. 

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