Forex reserves soar $2.9 billion to $564 billion

India’s foreign exchange reserves have increased by $2.9 billion for the week ended December 9, registering its fifth consecutive weekly rise. Forex reserves with the Reserve Bank of India (RBI) stood at $564 billion, data from the central bank showed.

The major factor for the increase in forex reserves was the big rise in foreign currency assets by $3.1 billion. India’s foreign currency reserves consists mainly of US dollars, along with other major currencies expressed in dollar terms. However, some of the gains in foreign currency assets were offset by a decline in gold reserves. The gold reserves with the RBI fell $296 million.

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Forex reserves increased by $19.3 billion in the past four weeks, compensating for some of the losses in the reserves due to the RBI intervention in the currency market and valuation losses because of a strengthening US dollar. However, forex reserves were down by $43 billion during the week ended December 9 compared with March 31, 2022 and were lower by $72 billion on a year-on-year basis.

RBI’s operations have resulted in net sales of $33.42 billion till September, finance minister Nirmala Sitharaman said in the Lok Sabha earlier this week. The central bank had intervened in the market to maintain orderly conditions and to contain excessive volatility in the exchange rate, she had said.

Also Read: Inflation and trend drove 2022, what will drive FX markets in 2023, volatility?

While global factors such as the movement in the dollar index will be one of the key defining factors for the Indian currency, domestic factors such as trade and current account deficits will also determine the movement of the rupee, Aditi Gupta, economist at Bank of Baroda, said.

With the Fed signalling that high rates are likely to stay even in 2023, and the possibility of a slowdown in the US being entrenched in its forecasts, the dollar index may not see a major downside, the report said. Over this backdrop, the recent increase in forex reserves is a welcome relief,” Gupta said.