Foreign Exchange Reserves Up $1b Since January 16

Indias foreign exchange reserves have increased by nearly $1 billion in the fortnight after the Reserve Bank of India (RBI) announced a package of measures to shore up the rupee on January 16.

RBI officials said foreign currency reserves with the central bank have topped $24 billion, according to the latest data available. The reserves had dropped to $23.4 billion when the RBI announced its package.

Reserves had been declining in the four weeks beginning December 26, when they aggregated $24.2 billion. Thereafter, they declined to $24.1 on January 2, $23.7 billion on January 9 and $23.4 billion on January 16.

 

However, currency reserves have climbed since then, after the RBI started buying dollars to prevent the rupees appreciation against the greenback. The rupee has strengthened from Rs 40.4 a dollar on January 16 to Rs 38.73 yesterday.

During this period, the RBI has picked up almost $500 million in each week.

According to RBI officials, while speculative pressure has been contained, the country has also witnessed an increase in dollar inflows through repatriation of proceeds of global depository receipts and external commercial borrowings previously held abroad.

A lot of exporters are also bringing in their proceeds, now that they have seen that the rupee has steadied out, officials added.

RBI officials added that the bank had engaged in a $900 million swap with the State Bank of India. As a result, when the swap is reversed there might be a drawdown in the reserves level if there is no equivalent net purchase by the Reserve Bank.

The officials evinced concern over the slowdown in FII inflows. There has been a net outflow in the three months endingJanuary.

High-level team to meet Moodys

A high-level team led by finance secretary Montek Singh Ahluwalia will be holding discussions with Moodys Investor Services later this week in New York. This will be the final round of meetings between the Indian government and the agency before the latter announces Indias credit rating. The meetings will focus on several issues that the rating agency has listed to justify its recent decision to review Indias credit rating. India is expected to claim that unlike other southeast Asian countries, its economic fundamentals are on course and do not justify a downgrade. Senior government officials argue that the fiscal slippage was well-known and did not come as a surprise. Besides, unlike other countries in the region, Indias current account deficit on the balance of payments is well within safety limits at 1.5 per cent of GDP.