RBIs FX reserves see largest gain in over 2 years

Reserve Bank of India’s foreign exchange reserves rose $15 billion In the week ended March 7 to $653.9 billion. This is the sharpest single day gain since over two years, when reserves had risen by $14.7 billion in the week ended November 11 2022, RBI data showed.

The sharp rise in reserves is majorly due to revaluation in the dollar index and the foreign exchange swap done by the RBI on February 28 and, economists said.

The RBI did a $10 billion dollar rupee buy-sell swap on February 28 to address the deficit banking system liquidity, where the RBI bought dollars in exchange for rupees. On the other hand the dollar index has been weakening and touched a four-and-a-half-month low at 103 levels as of March 7, easing from around 110 in early January, LSEG data showed, when it was driven up by safe haven dollar demand.

“There was the FX swap, but the RBI also intervened in the foreign exchange market. On a net basis, the RBI purchases $4.5 billion and the rest was due to revaluation gains due to a weak dollar index,” said Gaura Sen Gupta, chief economist at IDFC First Bank.

The RBI intervenes in the foreign exchange market by selling dollars to smoothen the volatility in the rupee.

Within total reserves, foreign currency assets increased $13.9 billion to $557.8 billion, while gold reserves rose $1 billion to $74.3 billion, data showed.However, market participants will factor in the large short positions by the RBI in the forwards segments while calculating the foreign exchange reserves, experts said.RBIs short positions in the foreign exchange market reached a record high in January at $77.5 billion, data showed. Central bank sells dollars when short positions mature, which will impact the total foreign exchange reserves.