To be sure, the reserves had climbed $16.7 billion in the week ended August 27, 2021, but those additions included $12.6 billion worth of one-time Covid restructuring support from the International Monetary Fund (IMF).
“Select investment flows to corporates in India, coupled with a falling dollar index, triggered this surge in forex reserves,” said Bhaskar Panda, executive V-P, HDFC Bank. “Excess flows were sterilised, which helped shore up the depleting forex reserves. Such a move should help the rupee gain stability.” Forex reserves, including gold and special drawing rights (SDR) of the IMF, are at $544.8 billion as of November 11.
While the value of hard foreign currency assets rose $11.8 billion, that of gold climbed $2.6 billion. ET reported Friday that the dollar equivalent of about Rs 32,000 crore, or $4 billion, of the increase could be attributed to the central bank’s dollar purchases from the market. Revaluation of non-dollar assets in the reserves, too, could have helped boost the stockpile as the dollar index headed south over the past couple of weeks. Another indicator that the RBI actively bought dollars is the rupee’s muted appreciation against the US currency. The rupee climbed 2.3% between October 21 and November 11, compared with gains of 9.2% for the South Korean won and 6.7% for the Thai Baht.
“The rupee did not gain as much as other Asian or EM peers in the last few weeks with the falling dollar Index,” said Anindya Banerjee, currency analyst, Kotak Securities. “This was a wise move by the central bank. It puts India in a better position to navigate any future currency crisis.” The RBI had sold a net of $10.3 billion in the spot market and another $9.7 billion in the forwards market in September to ensure the rupee’s stability, the latest RBI data showed. But the trend is likely to reverse in October as the central bank started buying dollars from the market. Also, dollar demand could be tempered due to the recent softening in global crude and commodity prices. The latest monthly inflation print in the US was more benign than anticipated, fuelling expectations that the pace of Federal Reserve’s future rate increases will be more sedate. Such expectations have hauled US equity gauges from 52-week lows, setting the stage for growth asset rallies across continents.