India's Forex Reserves Rise For the First Time In 11 Weeks

India's foreign exchange reserve rose over $4 billion in the week that ended on May 20, the first increase after declining for ten consecutive weeks as the dollar drifted towards its first monthly loss in five months.

The Reserve Bank of India's weekly statistical supplement data showed the country's import cover rose to $597.509 billion in the week that ended on May 20, up $4.23 billion compared to the week before and the first increase since the week ending on March 4.

That comes at a time when the rupee has hit all-time lows repeatedly. Still, the dollar drifting towards its first monthly loss in five months comes as a relief to the RBI, battling runaway inflation, but it has to do so without hurting a nascent economic recovery from the pandemic-led disruption.

The country's forex war chest fell below the $600 billion mark in the final week of April and has languished around that level since.

That change in fortunes for the rupee and the import cover is driven mainly by investors scaling back their bets that rising US rates will spur further gains in the greenback and as fears of a global recession have receded somewhat.

The dollar index, which hit a two-decade high of 105.010 earlier in May was steady at 101.660 on Monday.

While investors have seized on hints the Federal Reserve, once it has hiked aggressively over the next two months, might then take a breather, most analysts are wary of calling an outright end to the recent dollar strength.

"The Fed has stopped short of validating calls for even more tightening, leading to a plateau in forward expectations," NatWest Markets' global head of desk strategy, John Briggs, told Reuters.

Indeed, with no signs of easing in the Russia-Ukraine war, rising price pressures, the persistence of capital outflows from emerging markets into safe-haven shelters and aggressive action from major central banks are likely to boost the greenback and weigh on the Indian currency and its FX war chest.