Twitter
Advertisement

Dollar's fall lifts India's Fx reserves to record high

Reserves rise $4.26 billion to 4340 billion in week ended March 20 as depreciation of the US unit swells value of non-US currencies in India's forex kitty; dealers see RBI protecting rupee at 62.20 a dollar level

Latest News
article-main
FacebookTwitterWhatsappLinkedin

India's foreign exchange reserves hit an all-time high of $340 billion for the week ending March 20, accordingly to the fortnightly data released by the Reserve Bank of India (RBI). The reserves rose $4.26 billion, driven mainly by jump in the foreign currency assets. The depreciation of the dollar against other currencies in the last fortnight has enhanced India's forex kitty. It was the foreign currency assets that India held in non-US currencies appreciated by $4.26 billion during the fortnight.

India holds some of its foreign exchange reserves in a basket of currencies like the yen, sterling, euro besides the dollar as a risk mitigation strategy. In the last fortnight the dollar depreciated nearly 3% against these currencies enhancing the India's foreign currency asset position. RBI has also been buying dollars in the sport market to stem the excessive appreciation of the dollar which has also partly contributed to the swelling of the forex reserves.

Ashutosh Khajuria, president treasury and credit at Federal Bank, told dna, "Other currencies where India held its reserves have appreciated boosting our forex kitty. This is the seventh time this year foreign exchange reserves touched an all-time high. RBI may have mopped up from the market but that does not seem to be high."

However, other forex dealers say that RBI has been protecting the rupee at around Rs 62.20 to the dollar and not allowing it to appreciate more than that as it may hurt the exporters. RBI governor Raghuram Rajan said on March 4, when he cut the repo rate by 25 basis points, that an excessive appreciation of the rupee is undesirable.

Rajan had said, "While an excessively strong rupee is undesirable, it too creates disinflationary impulses. It bears repeating here that the Reserve Bank does not target a level for the exchange rate, nor does it have an overall target for foreign exchange reserves. It does intervene on occasion, in both directions, to reduce avoidable volatility in the exchange rate. Any reserve build-up is a residual consequence of such actions rather than a direct objective."

British brokerage Barclays has said it sees the RBI continuing to shore up the forex reserves, which have been hitting new highs for many months, to the tune of $50 billion to take the overall kitty to over $380 billion by December 2015.

Geopolitical tensions in West Asia and expectations that the US Federal Reserve may start hiking interest rates forcing foreign portfolio investors exist from emerging markets are also playing on the RBI's mind when it mops up dollars from the forex market by releasing rupee liquidity in the domestic market.

Find your daily dose of news & explainers in your WhatsApp. Stay updated, Stay informed-  Follow DNA on WhatsApp.
Advertisement

Live tv

Advertisement
Advertisement