Liquidity infusion, revaluation buoys Forex reserves: Experts

Mumbai, Feb 13 (IANS) Central bank’s attempts to infuse liquidity, coupled with currency revaluation effect and appreciating gold prices grew India’s foreign exchange (Forex) reserves kitty during the week ended February 5, experts said on Saturday.

According to the Reserve Bank of India’s (RBI’s) weekly statistical supplement, the overall Forex reserves gained by $2.33 billion to $351.48 billion for the week under review.

The foreign reserves’ kitty had risen by $1.59 billion to $349.15 billion for the week ended January 29.

Analysts attributed the rise in Forex reserves to the US dollar buying activity of the central bank to ease the liquidity crunch in the cash market segment.

“RBI’s attempts to infuse liquidity in the money markets through its buying activity has led to the increase in reserve value. RBI is using the buying activity as an instrument to infuse liquidity,” Anindya Banerjee, associate vice president for currency derivatives with Kotak Securities, told IANS.

“Rise in Forex reserves took place, despite RBI’s attempts in the spot markets to sell US dollars to cap the slide in rupee’s value against the greenback. The net of this complex operation has resulted in the Forex gains.”

In addition, currency revaluation strengthened the foreign currency assets (FCAs) which is the largest component of India’s Forex reserves. It grew by $1.80 billion to $328.43 billion during the week under review.

Apart from the US dollar, the FCAs consist of nearly 20-30 percent of other non-US dollar major global currencies, securities and bonds.

The individual movements of these currencies against the US dollar impacts the overall foreign reserves value.

“The US dollar index during the week under review declined by two percent. The US dollar’s devaluation is likely to have added a major portion of the Forex gains,” a currency analyst from New Delhi told IANS.

Even, the country’s gold reserves rose. The bullion grew by $456.6 million to $17.69 billion for the week under review.

The gold reserves had remained stagnant, ever since they fell by $303.7 million to $17.24 billion during the week ended January 1.

Furthermore, the special drawing rights (SDRs) were higher by $51.6 million to $4.03 billion.

Similarly, the country’s reserve position with the International Monetary Fund (IMF) inched-up. It gained $16.8 million to $1.30 billion.

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