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Forex reserves reach highest level in 3 weeks on strong rupee, capital inflows

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Significant capital inflows boost forex reserves by over $2 billion

India’s forex reserves rose to a three-week high in the last week of July, falling below 80 per dollar to 79 on strong capital inflows and a weak reversal of the rupee.

Reserve Bank of India’s weekly supplementary statistical data showed that forex reserves rose by $2.315 billion to $573.875 billion for the week ended July 29, from $571.560 billion in the previous week.

This marks the highest forex reserves in three weeks and ends a four-week downward trend.

The Reserve Bank of India has burned the country’s foreign exchange reserves in its attempt to boost the rupee by selling dollars in the spot and futures markets, especially since Russia invaded Ukraine and the rupee fell to 77 per dollar for the first time ever and fell below Gone. To cross 80 against the greenback, its all-time weak level.

While the rupee has fallen significantly from around 74 per dollar at the start of the year, RBI’s intervention has helped prevent the currency from depreciating even more rapidly and wildly.

The RBI, for its part, has said that it was ready to do whatever it takes to stabilize the rupee. In fact, RBI Governor Shaktikanta Das had said, “You buy an umbrella to use it when it rains!”, indicating that the central bank is using foreign exchange reserves to deal with currency volatility.

The recent strengthening of the rupee has supported the latest reversal in India’s import cover. The currency rose to a one-month high on Tuesday, trading below 79 per dollar on significant capital inflows in recent days and the greenback stumbled on easing bets of aggressive Federal Reserve monetary action amid fears of a recession.

Foreign institutional investors became net buyers of Indian assets in July for the first time in a year. This trend continues, giving relief to the rupee and the country’s import cover.

In fact, after nine consecutive months of continuous selling, foreign investors have become net buyers and have infused around Rs 5,000 crore in Indian equities in July on softening dollar index and good corporate earnings.

This is in sharp contrast to the net outflow of Rs 50,145 crore from the stock market seen in June. The reversal in July was the highest net outflow since March 2020, when foreign portfolio investors (FPIs) pulled out Rs 61,973 crore from equities, data from the depositories showed.

FPIs became net buyers for the first time in July, following nine consecutive months of massive net outflows, which began in October last year.

Between October 2021 and June 2022, he made huge sales worth Rs 2.46 lakh crore in the Indian equity markets.

Recent international investor sentiment in favor of Indian assets could be a reversal of deep selloff in Indian equities, and many experts point to that pattern as a turning point for the markets.

“This gives us a positive sign that things may not be so bad for foreign investments in equity markets,” Madan Sabnavis, chief economist, Bank of Baroda, told NDTV.

“If this trend continues, it could be a turning point for the equity markets, it will also help the rupee as foreign outflows pulling money is pulling the rupee,” he added.

This is good news for India and the war chest of the country, at a time when other smaller economies are facing crisis as they are fighting with low forex reserves.

The country’s foreign currency assets (FCA) rose by $1.121 billion to $511.257 billion and gold reserves by $1.14 billion to $39.642 billion during the week ended July 29.

A significant portion of the total reserves are the FCA, which is expressed in dollar terms because the greenback is considered the world’s reserve currency and takes into account the rise or fall of non-US currencies, such as the euro, sterling and yen. , reserves held in FX.

On Friday, the RBI raised its prime lending rate by 50 basis points higher than expected since 2019, indicating more steps to stabilize inflation and the rupee.

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