RBI's foreign exchange reserves near 27-month high

Foreign exchange reserves rose by $ 1.84 billion for the week ending March 14 to $ 297.29 billion

The Reserve Bank of India (RBI)’s foreign exchange reserves are at an almost 27-month high — a level that is seen comfortable by the Street to tackle the US Fed's tapering.

The foreign exchange reserves rose by $1.84 billion to $ 297.29 billion for the week ending March 14, shows RBI data released on Friday. The latest data shows the foreign exchange reserves are back to the December 23, 2011 level. For the week ending December 23, the reserve position was at $ 300.86 billion.

Foreign currency assets, a key component of reserves rose by $ 1.84 billion to $269.81 billion. Gold reserves remained unchanged during the week.

Foreign exchange reserves had hit a 39-month low on September 6 when it touched $ 274 billion. The reserves started rising, after the central bank took several steps to encourage inflows.

For the week under review, the special drawing rights (SDRs) fell by $2.6 million to $ 4.48 billion, while India's reserve position with the International Monetary Fund was down $1.2 million to $2.02 billion.

“RBI has been buying dollars through state-run banks from the market to boost its reserves. The foreign flows, which the domestic markets are attracting is being absorbed by RBI,” said the treasury head of a public sector bank.

This week the US Fed announced further tapering due to economic recovery. The Federal Reserve trimmed the bond-buying programme for the third time at a meeting chaired by Janet Yellen. Now, the bond-buying programme stands at $55 billion per month after the further cut of $10 billion.

“By buying dollars from the market and infusing rupee, RBI is keeping the liquidity position comfortable. The move is helping RBI to prepare for any extreme situation in the global market,” said a currency dealer with a state-run bank.

Meanwhile, the rupee rose the most in two weeks on Friday due to strong foreign flows into domestic markets. The rupee ended at Rs 60.93 compared with the previous close of Rs 61.33 per dollar. The rupee had opened at Rs 61.20.

According to currency dealers, there is a month-end dollar demand from importers, but foreign flows in domestic market is helping the rupee to appreciate.