At $295.7 bn, foreign exchange reserves highest since April

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SummaryIndia’s forex reserves rose to the highest level since April as a steady stream of foreign institutional inflows

India’s forex reserves rose to the highest level since April as a steady stream of foreign institutional inflows into the equity markets added to the buffer built by the Reserve Bank of India (RBI) via the special swap facilities offered to banks between September 5 and November 30.

For the week ended December 6, forex reserves rose to $295.7 billion — an increase of $4.4 billion over the previous week — data released by the RBI show.

Reserves have now risen by $21 billion since early September, when they had fallen to under $275 billion due to increased intervention by the RBI in the currency markets to stem the fall in the rupee.

A bulk of the build in reserves has been on account of the swap windows opened by the RBI on September 4, under which banks could swap dollars raised through foreign currency non-resident (FCNR) deposits and overseas borrowings at a concessional rate. The facility helped garner a total of $34 billion for the RBI before it was closed on November 30. However, nearly half of the dollar flow, or $17.5 billion, seems to have been supplied to oil companies by the central bank through a seperate swap window, which was operational till mid-November.

In addition, strong foreign inflows into the equity markets have also added to reserves. According to Securities & Exchange Board of India (Sebi), foreign institutional investors have pumped close to $19 billion into Indian equities so far this calendar year. While debt outflows have been strong — adding up to $8.2 billion — the pace of selling in the debt market has also eased.

Among emerging market economies, Indonesia, Brazil, Turkey, South Africa and India were said to be in a weak position with regards to their forex reserves, economic growth and their huge current account deficits. Morgan Stanley had dubbed them as the ‘fragile five’ in one of its recent reports.

Indeed during April-September, the rupee had tumbled 13% and had hit an all-time low of 68.85/$ in August. During the same period, the Indonesian rupiah had declined 14.6%, the Turkish lira had fallen 10.3%, the Brazilean real had slipped 8.8% and South African rand had fallen 7.8%.

Since then, the Indian currency has been among the best performing emerging market currencies, having recovered close to 10% from it’s all time lows. The rupee closed at 62.12/$ on Friday compared to 61.83/$ on Thurday.

While the much-needed buffer in terms of

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