India’s foreign exchange reserves increased by $2.135 billion last week; RBI policy measures likely to boost the market

According to the latest weekly statistical data from RBI, India’s foreign exchange reserves increased by $2.315 billion to $573.875 billion in the week ending July 29. In the previous week ending July 22, reserves were down $1.152 billion.

During the week under review, foreign currency holdings, which constitute the main component of foreign exchange reserves, amounted to 511.257 billion dollars, up by 1.121 billion dollars compared to the previous week. During the week ending July 22, FCA recorded a decline of $1.426 billion.

On the other hand, gold reserves jumped by $1.140 billion to $39.642 billion in the week ending July 29. The previous week, gold reserves only increased by $145 million.

Additionally, SDRs increased by $22 million to $17.985 billion in the week ending July 29, while the reserve position at the IMF increased by $31 million to $4.991 billion. compared to the previous week.

According to the latest data from NSDL, investment by foreign portfolio investors (REITs) picked up in August. So far this month, through August 5, REITs have been pumping 14,175 crores in the stock market compared to the 4,989 crore July inflow.

On Friday, the rupee appreciated 16 paise to end at 79.24 against the US dollar after the RBI rate hike and positive domestic stocks. The local unit ended a two-day losing streak against the US currency in the interbank foreign exchange market. The rupee had floated between the daily high and low of 78.94 to 79.29 against the dollar on the day. The day before, the rupee was at 79.40 against the greenback.

Abheek Barua, Chief Economist at HDFC Bank, said: “Contrary to previous policies, the central bank also discussed the resilience of India’s external balances, implicitly communicating its preference not just for a less volatile rupee, but also perhaps for a certain resistance to a very strong depreciation of the rupee.There is a certain optimism around not only the balance of the current account but also its financing (NRI deposits, FII and FDI flows, etc.) on the part of While this could very well materialize, given the ongoing global tightening – both in rates and central bank balance sheets – we see upside risks to both the CAD and the BoP position.”

“The USD/INR pair may therefore continue to come under near-term depreciation pressures, although the RBI is willing to intervene quite aggressively to prevent the pair from breaking above the 80 levels,” Barua added.

In the latest monetary policy, RBI announced key measures that should strengthen the country’s foreign exchange reserves in the future.

RBI has raised the policy repo rate by 140 basis points over the past three policies. To address rising inflationary pressure, RBI raised the repo rate by 40bps in May, followed by a 50bps hike in June and another 50bps hike in August 2022 policy.

Now, the RBI repo rate is 5.40%, while the Standing Deposit Facility (SDF) rate is adjusted to 5.15% and the Marginal Standing Facility (MSF) rate and deposit rate are adjusted to 5.15%. 5.65% discount.

Shanti Lal Jain, MD and CEO of Indian Bank said, “To curb runaway inflation, the RBI has raised policy rates by 50 basis points. CPI inflation continued to exceed the RBI’s upper target range for the sixth consecutive month and remained above 7% for the third consecutive month. Through this policy, RBI has introduced several measures, including a 50 basis point increase in policy rates to maintain price stability while keeping the growth objective in mind,” adding that “the central bank has already started to tighten liquidity in the system along with withdrawal of the dovish posture in a calibrated manner. However, domestic inflation, which has been mainly driven by supply-side constraints, appears to have peaked.”

The CEO of the Indian bank also said, “allowing Autonomous Primary Traders (SPDs) to offer Forex services as the AD-grade bank will strengthen the Forex market. Additionally, by allowing SPDs for offshore Rupee, OIS will remove domestic/offshore price segmentation.By enabling a cross-border inbound bill payment system, the ease and convenience of NRIs will improve with the influx of currencies.”

To enhance the role of Autonomous Primary Dealers (SPDs) as market makers, RBI has proposed to allow SPDs to offer all FX market making facilities currently permitted to Licensed Class I Dealers, subject to guidance prudential.

RBI said: “This move would give forex clients a wider range of market makers in managing their FX risk, thereby expanding the forex market in India. to provide support for primary issuance and secondary market activities in government securities, which would continue to be the primary focus of primary dealer activities.”

Additionally, Jain said, “Establishing a committee to remove barriers related to MIBOR will assist in the transition of MIBOR as an international alternative benchmark.”

Overnight index swap contracts (OIS) based on the Mumbai Interbank Outright Rate (MIBOR) are the most widely used interest rate derivatives (IRD) in the onshore market.

In its statement, RBI said that the MIBOR benchmark rate, calculated on the basis of overnight silver trades executed on the NDS call platform within the first hour after market open, is based over a narrow trading window. Internationally, there has been a shift to alternative benchmark rates with broader participant bases (beyond banks) and higher liquidity.

Thus, the central bank has offered to set up a committee to undertake a thorough review of the issues, including the need for a transition to an alternative benchmark, and to suggest the most appropriate path to move forward. ‘before.

Raghvendra Nath, Managing Director of Ladderup Wealth Management, on the overall policy, said: “As indicated by RBI in the MPC, GDP growth should remain intact and they do not expect any major changes in the estimates. GDP going forward.However, given the RBI’s expectation of higher inflation over the next 2-3 quarters, a 50bp hike seems like a move in the right direction. has moved away from its dovish stance.The RBI will closely monitor inflation levels which are dependent on several factors like commodity prices, monsoons, etc. We believe that the rate hike is likely to have an impact on the consumption levels in the economy.For this reason, we could see a drop in the GDP figures compared to the estimate.

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