India?s forex reserves rose for the third straight week, by more than $1 billion, aided by strong dollar inflows into the debt market. Data from the Reserve Bank of India showed that forex reserves rose by $1.8 billion last week to $297.29 billion. Reserves have risen by $3.88 billion in the first two weeks of March.
Foreign institutional investors had poured $1.8 billion into the domestic debt market during the same period. FIIs have invested $6.2 billion into bonds so far in 2014. Strong inflows into the debt market, especially short-term debt, may have prompted the central bank to buy dollars, said currency dealers.
In 2013, despite a massive fall of the rupee to its all-time low of 68.85/$ on August, the RBI?s interventions in the exchange rate market were not aggressive. Economists had attributed this reluctance to intervene to the country?s depleting reserves. Forex reserves had dipped by $19 billion to $274.81 billion in September 2013 in the aftermath of the big outflows seen from the domestic debt market.
Reserves have steadily risen after RBI launched concessional swap windows to lure dollars into the country. Through these swap windows, banks could swap their dollars raised from non-resident deposits with the RBI for rupees. The swap windows garnered the RBI $34 billion.
As sentiment improved, FIIs have turned net investors of Indian bonds from December 2013, helping RBI shore up reserves by buying dollars from forex market.