New Delhi: India’s foreign exchange reserves swelled to a record high of $360 billion for the week ended April 1, largely on account of the Reserve Bank of India’s dollar purchases to rein in the rupee’s strength as foreign funds poured into Indian financial markets, analysts said.
Foreign investors added Indian debt and equities worth $3.7 billion in March, the highest in a year, after being net sellers in the previous two months. For the week, FX reserves were up $4 billion, data from the Reserve Bank of India (RBI) showed.
The surge is a stark turnaround from 2013 when the country’s current account gap hit a record high due to outflows on expectations the U.S. Fed would rein in its stimulus programme.
The RBI would also likely beef up its reserves chest ahead of the maturity of its concessional swap facility to get foreign currency non-resident (bank), or FCNR (B) deposits worth around $30 billion in October-November, analysts said.
“We have plenty of reserves to ensure that there is no undue volatility,” RBI Governor Raghuram Rajan told analysts during a teleconference after the central bank cut the key policy repo rate by 25 basis points to 6.50 percent earlier this week.
“We are preparing for the worst,” Mr. Rajan had said.
The RBI has been regularly buying dollars since last week to stem the rupee’s gains even as the currency continues to strengthen, hitting a more than four-month high of 66.07 against the dollar on Tuesday. “In the wake of modest current account gap and healthy appetite for India, capital flows are likely to remain strong and this would prompt RBI to continue intervening to absorb dollars and build reserves,” said Shubhada Rao, chief economist, Yes Bank in Mumbai.
India’s balance of payments swung to a surplus in October-December, marking a modest upturn in its financial position that analysts believe may prove resistant to global economic fragility.