India’s Forex Reserves Boosts The Rupee

Oskar Hartmannov
Tuesday 14 September 2021
Last Updated 2022-07-06T17:44:59Z

Indian currency
Healthy portfolio as well as general FDI [foreign direct investment] capital inflows are expected to further boost India’s foreign exchange reserves in the coming weeks.

Accordingly, the portfolio equity capital is attracted to India on the prospects of faster economic recovery. Lately, issuance of green and AT1 bonds [also called perpetual bonds, carry no maturity date but have a call option] by India’s corporate as well as banking sector along with FDI flows in general have led to a healthy accrual of forex reserves

Rise in forex reserves are expecte to keep rupee strong against the dollar in the week ahead reflecting in lower exahange rate of rupee against the UAE dirham. “Healthy portfolio as well as non-portfolio inflows can led to further rise in reseves,” Emkay Global Financial Services’ Lead Economist Madhavi Arora said.

“The reason is optimism over India’s accelerated economic recovery and no signs of tapering in the US. This trend is expected to continue” Consequently, India’s stock markets attracted over Rs 60 billion in just few sessions last week.

Strong rupee

The inflow led to a stronger rupee as well as booming equity indices. “India’s forex reserves have adequate cushion to handle the currency volatility that can arise during a possible taper down of the bond purchases by the developed economies over the next one year,” said Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research.

“Besides, reserves may remain stable and even further rise on the back of continuing inflows from bonds and general FDI.” Last week, an exponential rise in India’s ‘Special Drawing Rights’ allocation aided in the accural of over $16.663 billion into India’s foreign exchange reserves during the week ended August 27.

In financial parlance, SDRs are international reserve assets which are created by the International Monetary Fund (IMF) and are periodically allocated to its members in proportion to their quotas. The SDR balances are equivalent to liquid balances in convertible currencies in almost every aspect.

Surge in reserves

The Reserve Bank of India’s (RBI) forex reserves increased to $633.558 billion from $616.895 billion reported for the week ended August 20. Earlier, the RBI said that IMF has made an allocation of SDR 12.57 billion which is equivalent to around $17.86 billion at the latest exchange rate to India on August 23, 2021.

“The total SDR holdings of India now stands at SDR 13.66 billion (equivalent to around $19.41 billion at the latest exchange rate) as on August 23, 2021.”

As per RBI’s weekly statistical supplement, India’s forex reserves comprise foreign currency assets (FCAs), gold reserves, special drawing rights (SDRs), and the country’s reserve position with the International Monetary Fund (IMF). However, on a weekly basis, FCAs, the largest component of the forex reserves, edged lower by $1.409 billion to $571.600 billion.

On the other hand, the value of the country’s gold reserves rose by $192 million to $37.441 billion. Similarly, the SDR value rose. It increased by a whopping $17.866 billion to $19.407 billion. In addition, the country’s reserve position with the IMF rose by $14 million to $5.110 billion.

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