Mumbai: The Reserve Bank of India’s (RBI) special swap window has pushed the forex reserves stock to a fresh high of $ 740.80 billion, a jump of $ 11.475 billion for the week ended August 28, providing the central bank considerable firepower to defend the currency.
The latest increase has pushed the reserves well above the previous record of $ 728.494 billion, reached in the week ended February 27 this year.
Forex reserves have been consistently rising for nine straight weeks and were at $729.33 for the week ended August 21.
With the onset of the West Asia war, forex reserves had come under pressure as RBI sold dollars to stabilize a badly beaten rupee. To attract dollar flows and shield the falling rupee, the central bank on June 8, announced the USD-INR Forex Swap facility covering FCNR(B) deposits, External commercial borrowings (ECBs) and Overseas foreign currency borrowings (OFCB) inflows.
Beating street estimates by a wide margin, the RBI’s special swap windows raised a cumulative $136.3 billion by end-August, with the highest contribution (92 per cent) by FCNR(B) deposits at $126 billion, while the rest were via offshore borrowing facilities.
According to Radhika Rao, senior economist and executive director at DBS Bank, there is already a noticeable shift in the intervention bias. “USDINR, which was earlier stubbornly steady, in the face of strong FCNR inflows, has corrected sharply in recent sessions, testing below 95.0 handle to mid-94.0 due to strong intervention dollar sales and broader dollar swings.”
The total reserves comprise foreign currency assets (FCAs), gold reserves, Special Drawing Rights (SDRs) and India’s reserve position with the International Monetary Fund (IMF). FCAs, when expressed in US dollar terms, reflect the impact of appreciation or depreciation of non-US currencies such as the euro, pound and yen held as part of India’s foreign exchange reserves.
FCA, the largest component of the reserves, increased by $9.34 billion during the week to $600.67 billion. Gold reserves provided another boost, rising $2.19 billion to $116.41 billion. India’s Special Drawing Rights (SDRs) with the International Monetary Fund stood at $18.81 billion, down $43 million from the previous week. SDR holdings were up $188 million from end-March.
The country’s reserve position with the IMF decreased by $11 million during the week to $4.914 billion. It was up $106 million from end-March.
Meanwhile, the RBI on Friday absorbed over ₹6.02 lakh crore from the banking system through two variable rate reverse repo (VRRR) auctions as surplus liquidity remained at a record high. The central bank received and accepted bids worth ₹5.41 lakh crore in a three-day VRRR auction against the notified amount of ₹7 lakh crore. The auction was conducted at a cut-off rate of 5.24 per cent.
In another three-day VRRR auction, against a notified amount of ₹1.5 lakh crore, banks parked ₹60,419 crore with the RBI, also at 5.24 per cent.
