Forex reserves rise by $5 bn to touch $291.3 bn

Swells $5 bln in a week; steepest weekly rise in 2 years

India’s foreign exchange reserves have swelled by $5 billion for the week ended November 29 to $291.3 billion, aided by the concessional swap window made available by the Reserve Bank of India (RBI) on September 4 to attract inflows. This special window was open till November 30.

According to the latest data released by RBI, the rise in foreign currency assets has solely contributed to the increase in forex reserves while the value of the gold reserves remained unchanged. Foreign currency assets rose by $5.07 billion while the country’s reserve position at the International Monetary Fund fell by $46 million. Special drawing rights went marginally up by $12 million.

On the day he took charge as RBI governor on September 4, Raghuram Rajan had announced that RBI would offer a concessional window to banks to swap their incremental foreign currency non-resident (bank), or FCNR (B), deposits, mobilised for a minimum period of three years, at a fixed rate of 3.5 per cent for the tenor of the deposit. Foreign exchange reserves had hit a three-year low of $274.8 billion in early September.

RBI had also removed the cap on FCNR (B) deposits, which was capped along with domestic deposits, to give more flexibility to banks while pricing their products.

In addition, the central bank increased banks’ overseas borrowing limit from 50 per cent of unimpaired Tier-I capital to 100 per cent. Additionally, banks can swap such borrowing with RBI at a concessional rate of 100 basis points below the ongoing swap rate prevailing in the market.

“Given the sharp relief rally in rupee from 68.80 to 61.40, OMCs (oil marketing companies) will be eager to return the dollars before maturity, which would quickly push the dollar reserves over $300 billion. Over all, it is good for inflation and relief for importers,” said J Moses Harding, group CEO (liability and treasury management) at SREI Group.

Inflows worth $34 billion have come in via the window, RBI said earlier this week. Out of the total inflows, $17 billion was added to the forex kitty while the rest was used to meet the demand of oil companies, market participants said. RBI had opened a special window to meet oil marketing companies’ dollar demand, which was withdrawn last week. OMCs now source their entire demand from the market.

Once the oil companies pay back the dollar to RBI, which is scheduled during February and April, the reserves will further swell. “After oil companies pay back, the reserves will be able to provide import cover for eight months, compared to 15 months during the pre-crisis period. At least 10 months of import cover is required for currency stability,” said a senior official of a foreign bank.

Following the sharp fall in the value of rupee, which depreciated about 27 per cent against the during the April-August period, the currency has rebounded in the next three months, and has appreciated 10.77 per cent after hitting all time low of 68.83 per dollar on 28 August.

The rupee ended at 61.42 on Friday, compared to the previous close of 61.77 against the dollar. The rupee had opened at 61.65 and, during intra-day trades, touched a high of 61.41.