According to analysts, the Indian reserves are being build up by the Reserve Bank of India (RBI) to absorb any future global financial shock that was witnessed in June 2013.
“The RBI is building up the reserves to counter any future financial shocks like the one which was witnessed at the time the tapering announcements were made. Apart from that, the reserves will also act as a support to the Indian rupee,” Anindya Banerjee, Kotak Securities senior manager, currency derivatives, told IANS.
“The Indian rupee is very stable currently and the reserves will make sure that it will remain so. A healthy reserves will make sure that any other external shocks are taken care of,” Banerjee added.
The RBI is cautious about the US Fed’s stand that the rate hike might take place in the later part of the year.
With higher interest rates in the US, the foreign portfolio investors (FPIs) are expected to be led away from the emerging markets such as India.
The US Fed dropped an assurance to be “patient” in raising interest rates and signalled the hike could come by mid to late this year.
“Just because we removed the word patient from our statement doesn’t mean we will be impatient,” Janet Yellen, US Federal Reserve Board chairman said at a press conference after a globally-awaited meeting of the policy committee on March 18.
For the previous week ended March 20, the Indian reserves had increased by $4.26 billion to $339.99 billion. However, for the week ended March 13, the reserves had fallen by $2.06 billion to $335.72 billion due to a rally in the US dollar and that major non-dollar currencies were trading at their weekly lows.
The Indian reserves hold nearly 20-25 percent of the non-dollar currencies.
According to the RBI’s weekly statistical supplement, foreign currency assets, the biggest component of the forex reserves grew by $1.35 billion at $316.23 billion in the week under review.
The foreign currency assets had grown by $4.53 billion at $314.88 billion in the week ended March 20. The assets had, however declined by $1.97 billion at $310.34 billion in the week ended March 13.
The RBI said the foreign currency assets, expressed in US dollar terms, include the effect of appreciation or depreciation of non-US currencies such as the pound sterling, euro and yen held in reserve.
India’s reserve position with the International Monetary Fund (IMF) in the week ended March 27 increased by $8.5 million and stood at $1.29 billion.
The value of special drawing rights (SDRs) was higher by $26.2 million in the week under review at $4.00 billion.
Gold reserves were static at $19.83 billion. The gold reserves had plunged by $346.2 million in the week ended March 6. (IANS)