India forex reserve: Forex kitty inching to all-time high

MUMBAI: Reserve Bank of India’s dollar swaps helped the forex kitty to surge a healthy $4.37 billion in the week ended April 26 as the reserves are slowly heading back to the highs of April last year before the emerging market currency crisis caused the rupee to depreciate.

The forex kitty now stands at $418.5 billion up from $414.1 billion as the foreign currency asset which is the total of all foreign currencies in dollar, yen, pound and others held by the central bank, increased by $4.38 billion. The central bank’s special drawing rights (SDR) and reserve position with IMF reduced $5.9 million and $13.6 million respectively.

The RBI on April 23, 2019 had conducted $5 billion worth of swaps in its second such round this year, buying dollars held by high street banks at a rupee-dollar exchange rate fixed by the central bank. This was done to balance the economy’s cash needs and ensure speedier transmission of policy rate action. The first round of swaps was done in March.

“In order to meet the durable liquidity needs of the system, the Reserve Bank has decided to inject Rupee liquidity for longer duration through long-term foreign exchange Buy/Sell swap in terms of its extant Liquidity Management Framework,” RBI had said in a regulatory notice on April 1, 2019.

The forex kitty peaked at an all-time high of $426 billion in the week to April 13, 2018 but owing to a slew of factors such as emerging markets’ currency crisis in August post the crash of Turkey’s Lira, rising crude oil prices and US-China trade war, the central bank had to cut down its reserves to keep the Rupee from depreciating against dollar.

“With FX reserves now close to the all-time high, the RBI now has ammunition to manage volatility in FX markets. RBI has also been ramping up reserves by intervening in the market, thereby absorbing USD and keeping Rupee competitive,” said Abhishek Goenka, founder and CEO, Indian Forex Advisor.

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