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Forex Reserves Rise To Highest In 3 Weeks On Robust Rupee, Capital Inflow


Forex reserves rose by over $2 billion on vital capital inflows

India’s foreign exchange reserves rose to the best in three weeks within the final week of July, supported by sturdy capital inflows and the rupee’s weakening reversal to sharp positive factors from 80 per greenback to under 79.

The Reserve Bank of India’s weekly supplementary statistical knowledge confirmed foreign exchange reserves rose by $2.315 billion to $573.875 billion within the week ending July 29, from $571.560 billion within the prior week.

That marks the best FX reserves in three weeks and snaps a four-week falling pattern.

The Reserve Bank of India has burned the nation’s foreign exchange reserves in its try and shore up the rupee by promoting {dollars} within the spot and futures market, particularly since Russia invaded Ukraine and the rupee crashed to 77 per greenback for the primary time ever and hurled decrease to breach 80 in opposition to the buck, its all-time weak stage.

While the rupee has fallen considerably from about 74 per greenback in the beginning of the 12 months, the RBI’s intervention has helped restrict the forex from weakening much more sharply and wildly.

The RBI, for its half, has mentioned it was able to do no matter it takes to stabilise the rupee. Indeed, RBI Governor Shaktikanta Das had mentioned, “you buy an umbrella to use it when it rains!’, indicating that the central bank is using foreign exchange reserves to deal with currency volatility.

The rupee’s recent strength has supported the latest reversal in India’s import cover. The currency hit a one-month high on Tuesday, trading below 79 per dollar on significant capital inflows in recent days and as the greenback stumbled on easing bets of aggressive Federal Reserve monetary action amid recession fears.

Foreign institutional investors turned net buyers of Indian assets for the first time in a year in July. That trend has continued, bringing relief to the rupee and the country’s import cover.

Indeed, after nine consecutive months of relentless selling, foreign investors have turned into net buyers and invested nearly Rs 5,000 crore in Indian equities in July on softening dollar index and good corporate earnings.

That is in sharp contrast to a net withdrawal of Rs 50,145 crore from the stock market seen in June. The reversal in July was the highest net outflow since March 2020, when foreign portfolio investors (FPIs) had pulled out Rs 61,973 crore from equities, data with depositories showed.

FPIs turned net buyers for the first time in July after nine straight months of massive net outflows, which started in October last year.

Between October 2021 and June 2022, they sold a mammoth Rs 2.46 lakh crore in the Indian equity markets.

The recent international investors’ sentiment in favour of Indian assets could be a reversal of a deep sell-off in Indian equities, and many experts point to that pattern as a turning point for markets.

“This provides us a constructive sign that issues might not be that dangerous for overseas investments in fairness markets,” Madan Sabnavis, Chief Economist at Bank of Baroda, had told NDTV.

“If this pattern continues, it may very well be a turning level for the fairness markets; it will additionally assist the rupee as overseas outflows pulling out cash has been dragging rupee,” he had added.

That is good news for India and the country’s war chest at a time other smaller economies face a crisis at hand as they fight with low forex reserves.

The country’s foreign currency assets (FCAs) rose by $1.121 billion to $511.257 billion, and gold reserves were up by $1.14 billion to $39.642 billion during the week ending July 29.

A significant portion of total reserves is FCAs, which are expressed in dollar terms as the greenback is considered the world’s reserve currency and takes into account the rise or fall in non-US currencies, such as the euro, sterling and yen, held in FX reserves.

On Friday, the RBI hiked its key lending price by a bigger than anticipated 50 foundation factors to the best since 2019, and hinted at extra steps to stabilise inlfation and the rupee.

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