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India’s forex reserves hit half-trillion mark.

Date: 13-06-2020
Subject: India’s forex reserves hit half-trillion mark
Mumbai: The country’s forex reserves rose by $8.2 billion during the week ended June 5 to cross the half-a-trillion-dollar mark for the first time. 

Forex reserves rose to $501.7 billion from $493.5 billion a week earlier. The increase was due to an $8.4-billion jump in foreign currency assets to $463 billion. Of the other components of the reserves, the value of gold declined by $329 million to $3.2 billion, and reserve position in the International Monetary Fund rose by $832 million to $4.2 billion. 

Bankers attributed the increase in reserves to dollar inflows arising out of deleveraging by Indian corporates. 

Reliance Industries has been selling large chunks of its holding in Jio Platforms to global investors and has received a commitment of Rs 97,885 crore. Bharati Telecomtoo raised $1 billion selling stake through a block deal. 

GSK sold $3.3 billion in Unilever. Bankers say that large deals, even the ones in local markets, end up drawing foreign investor interest. 

“The RBI has been buying dollars since governor 

Shaktikanta Das took charge in 2018. With forex reserves, the more you have, the less the need to sell. The forex market knows that the RBI can easily sell $50 billion worth of dollar to ward off speculative attacks,” said Bank of America Securities India economist Indranil Sen Gupta. He added that as a result, forex markets have avoided testing the rupee even as other currencies like Brazil, South Africa, Turkey, and Indonesia have come under pressure. 

But banks say that high reserves does not mean that all is well on the external front. “The dollar bond yield on Indian credit is still higher than pre-Covid level. Yields have come down of late because of easing dollar liquidity, but they are still away from pre-Covid levels. The reason for the underperformance is how the macros are stacking up, plus uncertainty in respect of the infection and associated costs,” said DBS head (treasury) Ashhish Vaidya. “The positive is that there is a larger coverage of imports, which makes India less vulnerable. The corporate deleveraging also reduces the overall risk in the corporate sector,” said Vaidya. 

Gupta said the collapse in oil prices has helped offset the outflows in foreign portfolios. Also, there is no potential stress build-up on the rupee because the RBI has been following a prudent strategy of letting the Indian currency slide gradually. “The RBI has been following an asymmetric forex intervention policy of buying dollars when there are inflows and letting the rupee go a bit when there are outflows,” he said.India is the only country among the top five — in terms of forex reserves — to have a current account deficit. What this means is that unlike others where the reserves are an outcome of intervention aimed at preventing currency appreciation, India builds its reserves since a large part of the foreign inflows are liabilities that have to be repaid at some point. 

Source:- timesofindia.indiatimes.com

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