Business
Depreciating dollar, RBI investment returns hike foreign reserves
Mumbai, May 23
Depreciation in dollar value,
interest payments on securities held by the apex bank in non-dollar
currencies and the rich payouts for its participation in the forwards
trading market led to an exponential rise in India's foreign exchange
reserves.
According to the data furnished by the Reserve Bank of
India (RBI) in its weekly statistical supplement, India's total foreign
exchange reserves grew by $1.74 billion to touch a new record high of
$353.87 billion for the week ended May 15, 2015.
For the week
ended May 8, the reserves grew by $262.4 million and stood at $352.13
billion. In the week before that (May 1) they had rocketed by $7.26
billion and reached $351.86 billion.
Foreign exchange reserves
have increased by close to $25 billion since January as overseas
investors buoyed by the hope of economic revival poured in dollars in
the local debt and equities market.
"The reserves have grown and
touched a new high. It is due to a combination of reasons like
depreciation of dollar which translated into a rise in non-dollar
currencies and gold value," Anindya Banerjee, senior manager for
currency derivatives with Kotak Securities told IANS.
"It is
also assumed that the RBI has received the interest payment on
securities it holds in non-dollar currencies. The RBI is also pretty
active in the forward purchase markets since the last 18-23 months and
this could also have resulted in the exponential rise in the foreign
reserves," Banerjee pointed out.
Another crucial factor for the
rise in the reserves is the assumption that RBI has not intervened in
the forward trading market by selling dollars to arrest the fall in the
rupee value.
"The RBI has finally found a comfortable corridor
of Rs.63-Rs.65 per dollar for rupee and it is unlikely that it
intervened this week to slowdown the rupee fall. The rupee value has
stablised during the last week," Banerjee elaborated.
During the
last two weeks the rupee value was impacted by the significant pull-back
of foreign funds due to the minimum alternate tax (MAT) issue.
Some
estimates point out that the RBI may have sold nearly $5-$6 billion in
the forward trading markets to arrest the slide in the rupee value which
currently stood at Rs.63.43 per dollar.
The other major factor
for the RBI to continue its build-up of the reserves is to counter any
future financial shocks and further slide in rupee value like the one
which was witnessed in 2008 and June 2013.
"Apart from dealing
with any future financial shocks like the one which was earlier
triggered by the US Fed's announcement of tapering, the healthy state of
reserves has acted as a support to the Indian rupee's value," Banerjee
added.
The RBI is cautious about the US Fed's stand that the rate hike might take place in the later part of the year.
With
higher interest rates in the US, the foreign portfolio investors (FPIs)
are expected to be led away from the emerging markets such as India.
Meanwhile,
the foreign currency assets (FCAs) which form the largest component of
the forex reserves increased by $1.70 billion and stood at $329.12
billion in the week under review.
The country's gold reserves
remained stagnant at $19.33 billion. The reserves had augmented by
$297.7 million during the week ended May 1.
The special drawing rights (SDRs) were up by $27.80 million to $4.09 billion.
The
country's reserve position with the International Monetary Fund (IMF)
grew by 9.1 million to $1.32 billion during the week under review.