At USD 426.4 bn, forex kitty scales new life-time high

India's foreign exchange reserves soared to a new record high of USD 426.416 billion in the week to June 21, surging a whopping USD 4.215 billion boosted by higher foreign portfolio investments and a stable rupee.

The previous high was USD 426.028 billion in the week to April 13, 2018. Since then it had been fluctuating and had fallen by over USD 35 billion, as the monetary authority had been heavily intervening in the market to salvage the rupee, which was the worst performing currency in Asia throughout 2018.

Shy of USD 427 billion, the reserves can take care of imports for almost 10 months, according to market experts.

Forex reserves are one of the key revenue earning sources for the central bank, which invests the money in foreign government bonds and also with the IMF and other secure investment class. A portion of it is used to shore up the gold reserves as well, which after decades, the RBI had increased by over 8 tonnes last fiscal.

For decades, the American government securities have the single largest investment class for the RBI despite it being one of the lowest yielding investments but for the fact that the US government has the most secure credit profile.

As of end May, of the total forex reserves over USD 157 billion were invested in US gilts, as per the latest US Fed data.

In the reporting week, the reserves soared USD 4.215 billion, while in the previous reporting week ending June 14, it had declined by USD 1.358 billion to USD 422.2 billion.

Higher forex reserves are must for a fast-growing economy like India with higher imports and lower export earnings.

Earlier in the day, the central bank said, the country is driven by higher imports, mostly by crude oil, whose prices spiked during the reporting week due to the Iran-US diplomatic row, the FY'19 CAD rose to 2.1 per cent of GDP or USD 57.2 billion as against 1.8 per cent in the previous year. But for the March quarter, it more than halved to 0.7 per cent from 1.8 per cent, the central bank said.

During June (till 23), overseas investors had pumped in a net of Rs 10,312 crore into the domestic capital markets. This has helped steady the rupee on one hand and also boosted the reserves kitty.

During the month, though the debt segment accounted for the lion's share, equity investments slowed down on account of rising geopolitical tensions between Iran and the US coupled with trade conflict, according to the experts.

Foreign portfolio investors have been net buyers for the previous four consecutive months. They invested a net Rs 9,031.15 crore in May, Rs 16,093 crore in April, Rs 45,981 crore in March and Rs 11,182 crore in February (both equity and debt).

The US dollar mobilised through the two dollar/rupee buy-sell swaps of USD 5 billion each conducted by the Reserve Bank in March and April also aided the forex reserves.

In the week to June 28, the foreign currency assets, the major component of the overall foreign exchange reserves, increased USD 4.202 billion to USD 398.649 billion.

Expressed in dollar terms, foreign currency assets include the effect of appreciation/depreciation of non-US units like the euro, pound and yen held in the reserves.

Gold reserves remained unchanged at USD 22.958 billion, according to the RBI data.

Special drawing rights with the International Monetary Fund increased by USD 4.2 million to USD 1.453 billion. The country's reserve position with the fund also rose by USD 9.6 million to USD 3.354 billion.