India’s Foreign Currency Reserve Moves Up

In a recent report released by the Reserve Bank Of India (RBI), the regulatory bank stated that India’s forex reserves rose by US$ 8 million to US$ 263.652 billion for the week ended June 19, compared with US$ 263.644 billion a week ago.

Assets denominated in foreign currency increased by US$10 million to US$252.808 billion during the week against US$252.798 billion in the previous week. This gives the regulatory bank enough power to control unwanted exchange rate fluctuation.

The US dollar-denominated foreign currency assets include the effect of appreciation or depreciation of non-US currencies (such as Euro, Sterling, Yen) held in reserves, RBI stated in its release. The country’s gold reserves and special drawing rights (SDRs), remained unchanged at US$ 9.604 billion and US$1 million respectively during the period.

RBI also said that India’s reserve position in the International Monetary Fund (IMF) dipped by US$2 million to US$1.239-billion in the week as compared to US$1.241-billion in the previous week.

This increase in foreign currency can be attributed to some marginal revival in FII and FDI flows since substantial accumulation of foreign currency from exports has to be ruled out for the time being, as exports are slack. This gives the RBI enough flexibility to go for an open market operation in order to safeguard the interest of both importers and exporters.

This increase in forex reserves may lead to some appreciation of “Rupee” against “US$” in the domestic market, which in turn may have some negative impact on software exporting companies like Infosys Technologies Ltd. (NASDAQ:INFY), Wipro Ltd. (NYSE:WIT), whose export receivables are pegged in US$. Things will be clear, after the annual union budget in the first week of July. Till then, both exporters and importers have to be patient.

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