Forex reserves rise for third week in a row; up $2.9 bn to $550.14 bn

Fall in US dollar index seen providing revaluation boost to RBI reserves

The Reserve Bank of India’s (RBI’s) foreign exchange reserves rose by $2.9 billion to $550.14 billion in the week ended November 25, the latest central bank data showed.

The data marks the third consecutive week in which the RBI’s reserves have increased.

The rise in reserves last week was on account of an increase in the RBI’s foreign currency assets, which jumped $3 billion to $487.29 billion, the data showed.

In the week ended November 25, the rupee was flat against the US dollar. The Indian currency has, however, appreciated sharply in the previous month, adding on 1.7 per cent.

The gains in the rupee were driven by anticipation of the Federal Reserve slowing down the pace of rate hikes after data showed a larger-than-expected decline in US inflation. The US dollar index weakened around 5 per cent the previous month.

With the strength in the US dollar now having subsided, many economists believe the RBI’s reserves could see revaluation gains in coming months, along with greater returns on its foreign reserves holdings due to higher global interest rates.

A large chunk of the RBI’s reserves is in the form of US government bonds.

The RBI’s reserves were around $631 billion in late February when the Ukraine war broke out. The conflict, followed by the US Fed’s tightening cycle, propelled global funds towards the dollar, exerting pressure on emerging market currencies such as the rupee. Consequently, the RBI sold dollars from its reserves in order to prevent excessive volatility in the exchange rate.

Reserves worth $530 billion were equivalent to 8.6 months of imports projected for the current year, the RBI had said earlier this month. The level of reserves in September 2021 accounted for almost 15 months of imports.