India’s forex reserves rose by nearly $2.4 billion during the week ended July 29, after four consecutive weeks of decline, on positive inflows by foreign investors into the Indian equity market. The country’s foreign exchange reserves rose by $2.315 billion to $573.875 billion during the week ended June 29, according to the weekly supplementary statistical data of the Reserve Bank of India (RBI).
RBI Governor Shaktikanta Das said, “India’s foreign exchange reserves, complemented by net futures assets, provide insurance against global spillovers. Our umbrella remains strong.” “The Reserve Bank has also used its foreign exchange reserves accumulated over the years to contain exchange rate volatility,” he said.
During the current fiscal (till August 4), the US Dollar Index (DXY) has gained 8 per cent against a basket of major currencies. In this environment, the Indian rupee has advanced relatively systematically, depreciating 4.7 per cent against the US dollar during the same period – much better than many of its reserve currencies as well as many of its EMEs and Asian peers.
The depreciation of the Indian rupee is more due to the appreciation of the US dollar rather than a weakness in the macroeconomic fundamentals of the Indian economy. “Market intervention by RBI has helped in controlling volatility and ensuring orderly movement of rupee. We remain cautious and focus on maintaining stability of Indian rupee,” Das said.
In July, foreign investors became net buyers in Indian equities after nearly 10 months, with about Rs 4,980 crore inflows into the Indian equity markets. This comes after heavy selling by these entities to the tune of around Rs 50,203 crore. According to NSDL data, foreign investment in July stood at Rs 4,989 crore, compared to Rs 50,000 crore in June, Rs 39,993 crore in May and Rs 17,144 crore in April.
Other central banks in Asia also used their foreign exchange reserves to protect their currency. Despite the resulting fall, India’s foreign exchange reserves remain the fourth largest globally.
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