Foreign exchange reserves snap 4-week falling streak, grow by $1.5 bn

RBI's foreign currency assets up $1.2 billion to $497.1 bn last week

After four consecutive weeks of decline, the Reserve Bank of India’s foreign exchange reserves rose by $1.5 billion to $562.4 billion in the week ended March 3.

The rise was largely on account of an increase in the RBI’s foreign currency assets, which climbed $1.2 billion to $497.1 billion in the last week, latest central bank data showed.

In the week ended March 3, the rupee strengthened sharply versus the US dollar, gaining 1 per cent, as corporate and overseas investment flows boosted the local currency.

“India's forex kitty rose on the back of revaluation of foreign assets and dollar buying from the central bank as the rupee appreciated following corporate dollar inflows,” said Dilip Parmar, research analyst at HDFC Securities.

After increasing sharply in November and December, the RBI’s reserves declined most of February. The rupee witnessed volatility in February as renewed concerns over rate hikes by the US Federal Reserve led to the US dollar strengthening. The RBI intervenes in the domestic currency market through dollar sales or purchases in order to curb excessive volatility in the exchange rate.

Reserves worth $576.8 billion as on January 27, 2023, cover 9.4 months of projected imports for the current financial year, said the central bank’s February Bulletin.

From June to October of 2022, the RBI was a net seller of US dollars in the currency market as the central bank sought to rein in excessive volatility in the rupee’s exchange rate amid the Ukraine war and aggressive rate hikes by the Federal Reserve. The foreign exchange reserves increased by $28.9 billion since September-end to $561.6 billion as on January 6.