India's foreign exchange reserves logged their biggest weekly jump in more than a year for the week ended November 11, in line with analysts’ expectations who said the US dollar has lost momentum and the RBI is gaining reserves primarily from revaluation gains and perhaps also some opportunistic buying.
The foreign exchange reserves of Asia's third largest economy rose by a whopping $14.72 billion to $544.715 billion, the fastest pace of growth since August 2021, according to data released today by the Reserve Bank of India.
For the week ending Oct. 28, the foreign exchange reserves had jumped $6.56 billion to $531.08 billion, then the biggest weekly jump since September 2021.
While the sharp jump was likely fuelled by the softer dollar and changes in the central bank's forward book, this is some turnaround from the central bank’s persistent effort to restrict rupee’s downslide and valuation impact that had almost emptied the forex reserves significantly.
The spot forex reserves have fallen from $607 billion in end-March and are now down by $97.73 billion from the record high of $642.45 billion seen on September 3 last year. However, this is better than depletion of $117.93 billion reported for the week ending Oct. 21, when forex reserves had slumped to an over two-year low of $524.52 billion.
The forex reserves had depleted for 11 weeks out of 13 till last week.
The rise in the foreign exchange reserves can be attributed to a jump in the Foreign Currency Assets (FCA), which is a major component of the overall reserves, according to the Weekly Statistical Supplement released by RBI.
Foreign currency assets rose $11.8 billion to $482.53 billion for the week ending Nov 11. Gold reserves rose $2.64 billion to $39.70 billion.
Expressed in dollar terms, FCA consists of the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
For the week ended Nov 11, the rupee logged its best weekly performance in about four years. It jumped 2% last week, helped by a slide in dollar index, which was accelerated by the softer-than-expected U.S. inflation data.
The rupee closed at 81.6850 against 81.65 in the previous session, taking its losses for the week to 1.1%.
The central bank's strategy to buy US dollars is also helping Mint Road ease domestic liquidity, leading to a greater degree of comfort on short-term interest rates after they had climbed over concerns of tighter money supply.
"The RBI has been balancing the twin objectives of both stabilising the forex reserves to provide confidence to the forex market while at the same time ensuring that liquidity remains adequate," said Madan Sabnavis, chief economist, Bank of Baroda. "Hence, it has bought more than $8 billion in the market and also infused liquidity simultaneously to balance out the two. This is in alignment with the central bank's basic objective of curbing volatility in the markets."
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