RBI buys $19 billion forex forwards in May to shore up reserves

The central bank will recoup forex when the rupee is around 58-60/USD: BofA-ML

The Reserve Bank will continue to shore up its forex kitty after having bought $19.1 billion of short-term forwards in May following improvement in investor confidence post Narendra Modi-led BJP's victory in the general elections, a report said today.

RBI will continue to purchase when the rupee trades at 58-60 against the US dollar, said the Bank of America-Merrill Lynch report.

BofA-ML India chief economist Indranil Sen Gupta said RBI will recoup forex when the rupee is around 58-60/USD.

He noted that shoring up the forex cover is needed as the import cover has halved to about eight months, a level not seen since 2008. And for the RBI to maintain this level of forex cover it has to accrue $14.5 billion annually.

Quoting the just-released SDDS data from the IMF which showed the RBI bought $19.1 billion of short-term forwards in May, Gupta said: "We grow more confident of our call that Governor Raghuram Rajan will recoup forex to build the 'bullet-proof national balance sheet' he had talked of earlier".

According to the IMF's SDDS data, RBI bought $19.1 billion of short-term forwards in May reaping the advantage of improved investor confidence after the Modi win.

This brought down the net outstanding forward forex sales to $11.4 billion from $32 billion at end April. The bulk of these short-term long forward positions will mature in the second half of the current fiscal.

As per the latest RBI data, the forex reserves rose $1.385 billion to $314.92 billon, close its record high of $320 billion in September 2011.