India’s foreign exchange reserves increased by $5.8 billion in the week ended January 30 to hit a fresh all-time high of $327.88 billion, data from the Reserve Bank of India showed.
This is the biggest single-week rise in reserves since liberalisation. Reserves have been rising consistently over the last one year after the RBI began aggressively mopping up dollars that came into the local bond market. The central bank has been a net buyer of dollars so far in 2014-15.
It has bought a cumulative $75 billion from the in spot and the forward markets during April-December 2014.
While the RBI has maintained that it intervenes only to curb volatility in the forex market and not specifically to shore up reserves, the time to buy dollars has never been more conducive for the central bank. FIIs poured in a record $26.16 billion into Indian bonds in 2014 and have put in another $4.4 billion so far in 2015.
The central bank’s dollar purchases came in the wake of concerns over India’s external position after the country’s current account deficit widened to an unprecedented 4.8% of GDP in 2012-2013. This, followed by the flight of dollars in 2013 triggered by fears of policy tightening by the US Federal Reserve, had beaten the rupee to an all-time low.
Currency market players said RBI is building a war chest to protect the currency should the dollar flows reverse. Further, RBI also does not want the rupee to appreciate sharply on the back of big inflows into debt. The rupee has been moving in a tight band of 61.20-61.70/$ since January.