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India’s foreign exchange reserves surged past $700 billion in the week ended September 27, owing to a rise in foreign currency assets, latest data by the Reserve Bank of India (RBI) showed. The total reserves rose by $12.58 billion to $704.88 billion during the week—marking the fifth-highest weekly increase in foreign reserves.
During the current calendar year, total reserves have increased by $81.7 billion. India now has the fourth-largest foreign exchange reserve after China, Japan, and Switzerland.
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Foreign currency assets increased by $10.46 billion during the period due to revaluation gains and spot market dollar purchases by the RBI. Gold reserves increased by $2.18 billion in the previous week.
“Reserves rose because of revaluation gains, which were around $4.8 billion, and the rest was spot market purchases (dollars) by the RBI,” said Gaura Sengupta, economist, IDFC First Bank.
However, in the current week (ending October 4), there may be a smaller amount of foreign inflows due to geopolitical risk, plus the RBI may have been selling dollars in the spot market to defend the INR, so the increase won’t be as large, she said. Sengupta added that revaluation losses could also occur because US treasury yields are rising.
The dollar weakened after the US Federal Reserve implemented its first interest rate cut since the onset of the COVID-19 pandemic, reducing interest rates by 50 basis points.
The rupee appreciated to Rs 83.44 against the greenback during the week; however, the RBI intervened in the foreign exchange market via dollar purchases to avoid excess volatility. The local currency settled at Rs 83.70 per dollar during the week, depreciating by 0.15 per cent against the dollar.
“…there is room to buy more. Standard reserve adequacy measures show India being in the middle of the pack, and with the Balance of Payment (BoP) in surplus, reserves will grow. Larger FX reserves may not mean a stronger INR, and we expect the RBI to dampen FX volatility, with wider trading ranges,” said Rahul Bajoria, head of India and ASEAN Economic Research at BofA Securities India.
First Published: Oct 04 2024 | 8:32 PM IS
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