India's forex reserves climb $7 bn to $638 bn on revaluation effect

India’s foreign exchange reserves rose by a net $7.6 billion in the week ended February 7, latest data by the Reserve Bank of India showed. This marked the third consecutive weekly increase in total reserves, following a $1.05 billion gain the previous week.

 

The total reserves rose on the back of the rise in foreign currency assets which rose by $6.42 billion to $544.11 billion during the week.

 

The increase in foreign exchange reserves observed during the week was primarily driven by valuation gains, said experts. The impact of RBI’s $5 billion buy-sell swap was effectively offset by its net dollar sales in the spot market, they said.

 

“If we look at the reserve money data it is because of the revaluation effect. The RBI’s net dollar sales during the week highlight its continued intervention in the spot market to defend the INR and mitigate depreciation pressure. Despite executing a $5 billion buy-sell swap on the 31st, which settled the following week, the net sell figure would have been even higher without it. The increase in FX reserves observed this week was primarily driven by valuation gains, while the impact of the swap was offset by RBI’s net selling in the spot market,” said Gaura Sen Gupta, chief economist at IDFC FIRST Bank. 

 

Gold reserves increased by $1.3 billion during the week.

 

Meanwhile, the RBI doubled the scheduled OMO (open market operation) purchase amount for the next auction on Thursday, increasing it from ₹20,000 crore to ₹40,000 crore. The bond market expects that the RBI might announce additional OMO auctions.

 

This is expected to provide additional liquidity to the financial system which has remained in the deficit mode for the past eight consecutive weeks since December 16, 2024.

 

The net liquidity in the banking system was in a deficit of ₹2.4 trillion on Thursday, latest data by RBI showed.

 

“They doubled the amount as expected, after the OMO concludes, they might announce more auctions as deficit is continuously widening,” said a dealer at a primary dealership.

 

RBI’s active intervention in the foreign exchange market to avoid sharp decline in rupee against the dollar has weighed on the banking system liquidity. Foreign exchange market dealers said that the central bank could have sold around $12 billion- $14 billion in the current week.