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Business News/ Money / Personal-finance/  Forex reserves hit all-time high of $341.4 bn in FY15
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Forex reserves hit all-time high of $341.4 bn in FY15

Forex reserves rose by more than $1 bn in the week ended 27 March; RBI has added $37.7 bn to its reserves in 2014-15

The central bank added to its reserves on account of heavy dollar inflows into the local debt and equity markets. Photo: Pradeep Gaur/MintPremium
The central bank added to its reserves on account of heavy dollar inflows into the local debt and equity markets. Photo: Pradeep Gaur/Mint

Mumbai: Foreign exchange reserves with the Reserve Bank of India (RBI) is building up as the central bank last week purchased dollars from the market to prevent a sharp appreciation in the rupee.

Forex reserves increased by more than $1 billion in the week ended 27 March to $341.4 billion, according to weekly data released by RBI. The reserves are closing the financial year at a record high, having breached the previous record of $320 billion in February this year.

The central bank added $37.7 billion to its reserves in 2014-15 on account of heavy dollar inflows into the local debt and equity markets.

In 2014-15, foreign institutional investors (FIIs) invested $44.83 billion in equity and debt, according to data from the Securities and Exchange Board of India (Sebi). Of this, $17.89 billion was invested in equity and $26.93 billion in debt. FII investment rose more than four-and-a-half times compared with $9.76 billion in 2013-14.

RBI absorbed a lot of this from the market, helping build a buffer that can be used to support the local currency if there is a sudden outflow of capital.

“We are expecting that with increased economic growth in the country, dollar inflows are set to increase further. There will be some flows from foreign direct investment as well. Moreover, outflows have gone down by 35-40% over the last year. We are not expecting any interest rate hikes by the US Federal Reserve before September, so inflows should mostly be good," said Pramit Brahmbhatt, chief executive of Veracity Financial Services, a forex advisory firm.

The central bank’s decision to absorb excessive dollar inflows has also helped keep the rupee’s gains in check, even though the currency is considered overvalued by some. The rupee lost just 4.17% against the dollar in 2013-14 despite a near 23% surge in the dollar index, which measures the greenback against a basket of currencies.

However, Brahmbhatt said RBI also needs to take a view on the extent to which it wants to build reserves, given that it is invested in low return securities such as bonds issued by developed nations such as the US.

“At some point, the RBI has to take a call on whether it wants to continue building reserves further and if it does, then what it will be doing with it," he said.

The International Monetary Fund, which released its annual report on India on 11 March, noted that India’s forex reserves stand at 148% of IMF’s reserve adequacy metric.

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Published: 03 Apr 2015, 10:04 PM IST
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