Strengthening rupee swells India's Forex reserves

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SME Times News Bureau | 07 Nov, 2015
A strengthening rupee, coupled with increased foreign fund inflows into the equity and bond markets, buoyed India's foreign exchange (Forex) kitty by $2.09 billion, experts said on Saturday.

Overall, the Forex reserves stood at USD 353.63 billion for the week ended October 30.

"The primary reason for the hike in reserves can be attributed to the Reserve Bank of India (RBI) buying US dollars to prevent rupee from causing damage to our exports," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told media.

"The RBI tries to maintain the rupee above the 65 to a US dollar mark in an attempt to make the currency more competitive."

"The data for the week ended October 30, showed that a stronger rupee which ranged around 65 and below to a US dollar allowed the RBI, an opportunity to buy dollars, so as to keep the Indian currency in its comfort zone."

According to Banerjee, the RBI is comfortable with the rupee ranging anywhere in between 65-66.60 to a US dollar mark. Anything beyond or below the limit provokes the central bank to intervene by either buying or selling the greenback.

"Buying of US dollar, when ever the opportunity arises helps, the RBI in keeping the rupee in its comfort zone which supports exports, builds up reserves and stops one-sided moves in the Indian currency's value," Banerjee added.

On a weekly basis, the rupee weakened by 44 paise and closed at 65.27 to a US dollar during the week ended October 30. The rupee had closed at 64.83 to a greenback in the week ended October 23.

Notwithstanding, the weekly trend, the rupee had gained by four paise on October 30 at 65.27 to a US dollar from its previous close of 65.31 to a greenback.

The data with the National Securities Depository Limited (NSDL), showed that the FPIs (Foreign Portfolio Investors) bought Rs.2,967.12 crore or USD 457.27 million in equity and debt markets from October 26-30.

For the week ended Oct 23, India's Forex kitty had declined by USD 1.98 billion to USD 351 billion.

The data furnished by the RBI in its weekly statistical supplement showed that the foreign currency assets (FCAs) had gained by USD 2.10 billion to USD 330.14 billion in the week under review.

The FCA constitutes the largest component of India's Forex reserves. It consists of US dollars, major non-dollar currencies, securities and bonds bought abroad.

"Realignment of exchange rates especially, non-US currencies decline may have increased reserve value," Hiren Sharma, senior vice president, currency advisory at Anand Rathi Financial Services, told reporters.

The Indian reserves consists of nearly 20-25 percent of the non-dollar currencies. The individual movements of these currencies against the dollar impacts the overall reserve value.

"The FCA expressed in US dollar terms, include the effect of appreciation or depreciation of non-US currencies such as the pound sterling, euro and yen held in reserve," the RBI was quoted in its statistical supplement.

The country's gold reserves remained stagnant at USD 18.15 billion during the week under review. The country's gold reserves had risen by USD 116.5 million to USD 18.15 billion during the week ended October 2.

However, the special drawing rights (SDRs) in the week under review were lower by USD 10.2 million at USD 4.03 billion.

Furthermore, the country's reserve position with the International Monetary Fund (IMF) inched up by USD 3.00 million to USD 1.30 billion.