India’s foreign exchange reserves rose $2.9 billion during the week ended May 21 to $592 billion, according to the latest data released by the Reserve Bank of India on Friday. Foreign currency assets which constitute more than 90 per cent of India’s forex reserves rose $ 1.6 billion, while value of gold rose $1.2 billion.
The DXY -dollar index against a basket of currencies- lost 0.44% on May 20 and closed at 89.79, reversing most of its gains post the FOMC minutes were released the earlier day according to an economist with a private bank. This could have likely resulted in revaluation gains of non-dollar currencies in the reserves basket.
Reserve pile-up has been very choppy over the past few months as the difference between global and interest rates start widening. The reserves last touched $590 billion in January. But took four months to breach that mark .
An analysis of trend over the last one year indicates that almost a sixth of the stock of India’s foreign exchange reserves pile-up happened in the last one year during which reserves rose $102 billion mostly on account strong foreign investments into Indian equities as also contraction of imports due to restricted economic activity caused by the pandemic induced lockdown
“Sizeable contraction in imports relative to exports, under deep recessionary conditions, led to a current account surplus; along with robust net capital inflows, this led to a large build-up of foreign exchange reserves” the Reserve Bank said in its latest annual report released on Friday.