RBI's buying activity swells Forex reserves

Buying activity by the country's central bank and the revaluation impact of global currencies swelled India's foreign exchange (Forex) reserves during the week ended January 29, experts said on Saturday.

According to the Reserve Bank of India's (RBI's) weekly statistical supplement, the overall Forex reserves grew by $1.59 billion to $349.15 billion for the week under review.

The foreign reserves' kitty had risen by $355.1 million to $347.56 billion for the week ended January 22.

Analysts attributed the Forex gains on the dollar buying activity of the central bank.

"India's foreign exchange reserve grew on the back of RBI's buying activity. RBI used the buying activity as an instrument to ease the liquidity crunch in the cash market segment," Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

In addition, currency revaluations strengthened the foreign currency assets (FCAs) which is the largest component of India's Forex reserves. It grew by $1.58 billion to $326.63 billion during the week under review.

Apart from the US dollar, the FCAs consist of nearly 20-30 percent of other major global currencies, securities and bonds.

The individual movements of these currencies against the US dollar impacts the overall foreign reserves' value.

According to other currency analysts, periodic US dollar sales by the RBI capped some of the gains made on account of buying activity and currency revaluation during the period under review.

"The reserves could have increased further, if not for the RBI's selling activity which also took place during the week under review. The selling activity was conducted to contain the depreciation of rupee beyond the 68-69-level mark," the analyst noted.

Lately, the Indian rupee has been on a downward trajectory due to heavy outflows of foreign funds from the equity and debt markets.

On a weekly basis, the rupee weakened by 16 paise at 67.78-79 (January 29) to a US dollar from its previous close of 67.63 to a greenback (January 22).

It touched a new 29-month low of 68.23 to a US dollar -- its weakest level since late August, 2013 during the intra-day trade on January 28.

The weakness in the rupee value indicated the massive outflow of foreign funds from the Indian equity and debt markets.

The National Securities Depository Limited (NSDL) figures showed that FPIs (Foreign Portfolio Investors) were net sellers during the week ended January 29, 2016. They divested Rs.1,203.64 crore or $177.55 million in the equity and debt markets from January 25-29.

Similarly, data with stock exchanges disclosed that the FPIs sold stocks worth Rs.848.2 crore in the week under review.

The FPIs have been net sellers in every trading session with exception of January 1, 2016. In total FIIs have sold equities worth Rs.13,966 crore during January.

Market observes cited that in the medium term, RBI is seen comfortable with the rupee ranging anywhere between 67.20-68.50 to a US dollar.

Anything beyond or below this limit provokes the central bank to intervene by either buying or selling the greenback.

Nevertheless, the country's gold reserves were stagnant at $17.24 billion.

The gold reserves had diminished by $303.7 million to $17.24 billion during the week ended January 1.

Furthermore, the special drawing rights (SDRs) were higher by $3.8 million at $3.98 billion.

Similarly, the country's reserve position with the International Monetary Fund (IMF) inched-up. It gained $1.2 million to $1.29 billion.