Foreign exchange reserves have increased for the first time in two months amid depreciation of the rupee below the psychological 80-mark in the last month. Foreign exchange reserves had been witnessing a consistent decline since July 29 owing to a strong US dollar and the Reserve Bank of India’s (RBI) intervention in the currency market to check the downward slide of the rupee.
Reserves stood at $532.86 billion for the week ended October 7, higher by $204 million compared with the previous week, according to data released by the RBI.
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The growth in forex reserves was mainly due to the increase gold and special drawing rights, which grew by $1.35 billion and $155 million, respectively. Foreign currency assets fell by $1.31 billion during the week. Foreign currency assets are maintained in major currencies, and any movement in those reserves happens due to purchase or sale of foreign exchange by the RBI, income from deployment or revaluation of assets.
Around 67% of the decline in foreign exchange reserves during the current fiscal year was because of valuation changes thanks to a stronger US dollar and higher US bond yields, RBI governor Shaktikanta Das had said in the latest post-policy conference.
Despite the increase in forex reserves, the central bank may have to lend further support to the rupee owing to global headwinds. The RBI is likely to defend the psychological level of Rs 82/$, Aditi Gupta, economist at Bank of Baroda, said, adding that a combination of adverse global environment, along with rising domestic headwinds, may keep the rupee under pressure.
Weaker exports due to lower global demand and higher imports because of festive season may not bode well for the rupee as forex reserves are already depleted. Reserves were down by around $28 billion in September, RBI data showed.
