FX reserves hit new high of $328 billion

The Reserve Bank of India (RBI)'s foreign exchange reserves rose to a new record of $327.8 billion for the week ending January 30, show data released on Friday.

The rise was one of the sharpest in a week, rose by $5.85 billion. The reserves had risen by $6.7 billion in the week ending July 1, 2011. Foreign currency assets, a key component, rose $5.81 billion to $303.33 billion. Gold reserves remained unchanged at $19.4 billion.

The central bank has been purchasing dollars amid robust portfolio investment by foreign investors, which has not allowed any sharp appreciation of the rupee against the dollar. Net inflows from foreign institutional investors (FIIs) were $2.45 billion for the week under review.

"If RBI consistently buys foreign exchange, it can reach 10 months' import cover by March 2016, well above the critical eight-month cover needed for rupee stability," said Indranil Sen Gupta, India economist at Bank of America Merrill Lynch, in a note to clients.

For the week under review, Special Drawing Rights (SDRs) rose $24.6 million to $4.07 billion, while India's reserve position with the International Monetary Fund was up $6.8 million to $1.1 billion.

"RBI is in the process of building a war chest so as whenever there is a tendency of capital outflows, RBI should be in a position to stabilise the exchange rate and prevent volatility. This simply means RBI will be intervening in the market by selling dollars at the time a withdrawal happens. It is being noticed in the past that at around 61.5 (to the dollar), level there is enough interest in buying dollars by state-run banks," said Ashutosh Khajuria, president (treasury), Federal Bank.

The rupee ended at 61.70 to a dollar on Friday, compared with its previous close of 61.74.

"Next week, the rupee may trade in the range of 61.75 to 62.25. The bias is towards weakening because foreign flows may continue and RBI will keep mopping them," said the head of treasury of a state-run bank.