India’s foreign exchange reserves witnessed a significant jump of $2.561 billion to reach $644.151 billion for the week ended May 10, as announced by the Reserve Bank of India (RBI) on Friday. This surge follows a notable increase of $3.668 billion in the previous reporting week, where the reserves had climbed to $641.59 billion after three consecutive weeks of decline.
The week ending April 5 had seen India’s forex reserves hitting an all-time high of $648.562 billion after several weeks of steady rise. For the week ended May 10, the data released by the RBI revealed that foreign currency assets, a key component of the reserves, rose by $1.488 billion to $565.648 billion.
Foreign currency assets, when expressed in dollar terms, encompass the impact of the appreciation or depreciation of non-US units such as the euro, pound, and yen held in the foreign exchange reserves.
During the reported week, gold reserves also witnessed an increase of $1.072 billion to reach $55.952 billion. Additionally, the special drawing rights (SDRs) rose by $5 million to $18.056 billion. However, India’s reserve position with the International Monetary Fund (IMF) decreased by USD 4 million to USD 4.495 billion.
Rupee Performance: Analysis and Forecast
Throughout the week, the Indian rupee remained confined within a narrow range of 83.44 to 83.52 against the US dollar. However, on the final trading day, the RBI intervened by selling dollars at 83.50. Subsequently, long cutting and significant inflows, including $500 billion for a stake sale in a non-banking financial company (NBFC) and front running for the upcoming MSCI rebalancing amounting to $2 billion, propelled the rupee to almost 83.30 before closing at 83.3350.
Anil Kumar Bhansali, head of treasury and executive director at Finrex Treasury Advisors LLP, noted that this presented an opportune time for importers to procure dollars, as the exchange rate had lingered around 83.50 for the past two weeks. Importers were advised to hedge their near-term exposures at 83.35.
As India’s forex reserves continue to swell, bolstered by various factors including gold reserves and foreign currency assets, market participants will closely monitor the rupee’s performance and potential interventions by the RBI to ensure stability in the currency markets.
