Forex reserves rise to three-week high on Robust Rupee capital inflows

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New Delhi: In the last week of July, India’s foreign exchange reserves hit their highest level in three weeks on strong capital inflows and depreciation of the rupee after recent significant gains from $80 to below $79.
According to the Reserve Bank of India’s weekly supplementary statistics, foreign reserves increased by $2.315 billion to $573.875 billion in the week ended July 29 from $571.560 billion in the previous week.

This ends a four-week downtrend and is the highest level of foreign exchange reserves in that period.

India’s central bank sold dollars in the spot and futures markets to support the rupee, burning the country’s foreign exchange reserves. This was especially so after Russia invaded Ukraine and the rupiah fell to an all-time low of 77 to the dollar, before falling even lower to over 80.

The RBI’s action has helped prevent the rupee from falling much more sharply and crazily, despite falling dramatically from around 74 to the dollar at the start of the year.

The RBI, on its part, has indicated that it is ready to take all necessary steps to stabilize the rupee. In fact, RBI Governor Shaktikanta Das had observed, “You buy an umbrella to use it in the rain!” referring to the central bank’s use of foreign exchange reserves to manage currency volatility.

The latest change in India’s import security has been supported by the recent strength of the rupee. On Tuesday, the currency hit a one-month high of less than 79 cents against the dollar following strong capital inflows in the previous days and a weakening dollar as expectations of aggressive monetary policy from the US Federal Reserve eased amid a recession. fears.

For the first time in a year, foreign institutional investors became net buyers of Indian assets in July. This pattern has continued, helping the rupee and the country’s import coverage.

In fact, on the back of a fall in the dollar index and strong corporate earnings, foreign investors have switched from net sellers to buyers for nine consecutive months, investing around Rs 5,000 crore in Indian stocks in July.

This is in stark contrast to the net draw of 50,145 million from the stock market in June. The reverse in July was the largest net outflow since foreign portfolio investors (FPIs) withdrew 61,973 billion from stocks in March 2020, according to data from depository institutions.

After nine consecutive months of net positives since October last year, the FPI indices started to turn positive in July.

In the Indian stock market, they sold a massive 2.46 lakh crore between October 2021 and June 2022.

Many experts see this pattern as a turning point in the market as it could reverse a major sell-off in Indian stocks. Recently, international investor sentiment has shifted in favor of Indian assets.

“This gives us a positive signal that things may not be so bad for investments in foreign equity markets,” Bank of Baroda Chief Economist Madan Sabnavis told NDTV.

“If this trend continues, it could be a turning point in the stock market; it would also help the rupee because the foreign outflows that were pulling money out have been pulling the rupee,” he had added.

At a time when other smaller economies are struggling with low foreign exchange reserves, this is great news for India and the nation’s war chest.

During the week ended July 29, the country’s foreign exchange reserves increased by $1.121 billion to $511.257 billion, while its gold reserves increased by $1.14 billion to $39.642 billion.

FCAs, which represent a significant amount of total reserves and are denominated in dollars because the US dollar is considered the world’s reserve currency, take into account the rise and fall of non-US currencies such as the euro in foreign reserves. , pound and yen.

The RBI increased its benchmark borrowing interest author bigger than due 50 basis points on Friday, make it the supreme level since 2019 and teasing still Activities Thu stabilize inflation and the rupee.



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