India’s foreign exchange reserves rose to a new high of $371 billion, data released by the Reserve Bank of India (RBI) showed. Reserves for the week ended 9 September rose by $3.5 billion, taking the kitty to a record high.
Foreign investors were active buyers of Indian debt during the week ended September 9 and purchased $932 million in local currency bonds. In addition to this, the RBI has said that it will be taking delivery of forward positions ahead of the anticipated redemption of foreign currency non resident (FCNR) deposits. This will also lead to a steady increase in reserves.
In September 2013, against the backdrop of a shaky currency, the RBI had opened a special swap window for FCNR deposits as a way to shore up the rupee. Banks had raised nearly $26 billion in deposits with a maturity of three years under this scheme. These deposits are coming up for redemption now.
In order to prevent a sudden drop in reserves due to the outflow of these deposits, the RBI had built up forward positions with the intention of taking delivery close to the redemption of these deposits. This process will first lead to an increase in reserves and then an eventual decline.
Most economists believe the level of foreign exchange reserves held by India is adequate to cushion outflow.
“The RBI is largely squared with $23.9 billion of short-term long forwards positions in its books as at end-July to cover for the outflow of 2013 FCNRB deposits,” said Bank of America-Merrill Lynch in a report on September.
“However, banks may not be able to deliver beyond $15 billion,” the report added while saying that outflows beyond $15 billion could lead to some volatility and depreciation in the currency.
RECOMMENDED FOR YOU
POPULAR