In less than a month RBI may have bought $8 billion from market

by Mapping Returns
Reserve bank of India

In less than a month, RBI may have bought $8 billion from the market, simultaneously boosting the foreign-currency stockpile and enhancing rupee liquidity by as much as 67,000 crore rupees since the Diwali week.

India’s foreign-exchange reserves have begun climbing over the past few weeks, which declined about $100 billion since February this year, Reserves rose at their fastest pace in more than 14 months for the October 28 weekend. There are some indications that after some contraction in the next seven days, they have risen again in the week of November 11.

Rahul Bajoria, MD and Head of EM Asia (ex-China) Economics, Barclays said “In recent weeks, as the US dollar has lost momentum, the RBI is gaining reserves, primarily from revaluation gains and perhaps also some opportunistic buying, “Bajoria  also added, “This, along with slowing imports, will allay fears of deteriorating import cover ratios.”

Since November 4 with an addition of 32,000 crore rupees in base money by way of net foreign exchange assets of the RBI,  the absorption of foreign exchange by the central bank over the past four weeks could exceed $8 billion.

The addition of net foreign exchange assets to the reserve money, or base money, amounted to Rs 67,000 crore between October 21 and November 11 of this year. Base money reflects more than 90% of the central bank’s foreign exchange stockpile.

The strategy by the Central bank to buy US dollars is also helping Mint Road ease domestic liquidity, which is leading to a greater degree of comfort on short-term interest rates after they had climbed over concerns of the tighter money supply.

Madan Sabnavis, chief economist, Bank of Baroda stated “The RBI has been balancing the twin objectives of both stabilising the forex reserves to provide confidence to the forex market while at the same time ensuring that liquidity remains adequate,”Sabnavis also added  “Hence, it has bought more than $8 billion in the market and also infused liquidity simultaneously to balance out the two. This is in alignment with the central bank’s basic objective of curbing volatility in the markets.”

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