India’s forex reserves jumped nearly $11 billion as foreign investors rushed to buy local assets in anticipation of favorable economic performance and stability under the new government headed by Narendra Modi.
Foreign exchange reserves totalled US$314.92 billion by May 16, the most since October 2011 when the figure stood at US$320.39 billion, reported Economic Times. Data obtained from the Securities and Exchange Board of India shows that foreign investors have sunk US$4.4 billion into local debt and equity markets in May.
Foreign currency assets, which form the largest proportion of the FX reserves, surged $12 billion to $287.816 billion from the end of March until May 16. Foreign currency assets consider the effects of the rise or fall of non-US currencies such as yen, euro and pound stored in reserves. The rupee also advanced over the past two weeks as traders also expressed optimism that the new government will enact favorable policies to spur investment. The Indian currency rose 3 percent over the period to close at 58.52 versus the dollar on Friday.
A certain section of the market believe that probable intervention by the Reserve Bank of India (RBI) in the currency markets has helped reduce volatility due to the rapid influx in foreign funds and built up the FX reserves.
Bank of America Merrill Lynch in its report estimates that the RBI must look forUS$80 billion to sustain the import cover. However, it estimates that RBI will purchase about US$33.9 billion in foreign exchange.
“As a result, the RBI will likely need to do an OMO worth US $10 billion rather than sterilise forex intervention.” To register for a free 2-week subscription to ForexMinute Premium Plan, visit www.forexminute.com/newsletter.
To contact the reporter of this story; Yashu Gola at firstname.lastname@example.org