Revaluation, RBI dollar buys fuelled jump in India’s forex reserves – analysts

India’s foreign exchange reserves rose by $14.7 billion in the week through Nov. 11 to $544.72, data released on Friday showed. It was the largest accretion to reserves since August last year.

“I think the RBI did some major dollar buying (in that week) and continued to buy,” said Abheek Barua, chief economist at

.

“Combine that with the fairly large revaluation on account of the dollar’s decline, and we have this increase in reserves.”

The reserves had dropped to their lowest level in over two years in mid-October to about $525 billion. It has since recovered, thanks to the dollar’s pullback and possible purchases by the Reserve Bank of India.

In the week ended Nov. 11, the dollar index plunged 4%. Expectations that the U.S. Federal Reserve will slow the pace of rate hikes after softer-than-expected inflation data fuelled the biggest decline in dollar index in more than two years.

Longer-dated and shorter-maturity Treasury yields declined about 30 basis points that week.

Nearly half the increase in reserves is attributed to the dollar’s fall and the decline in U.S. yields, said Vivek Kumar, an economist at QuantEco Research.

The rupee rose about 2% against the dollar in that week, hovering around 80.80.

“From the RBI’s point of view, it was a good opportunity to buy dollars and rebuild reserves,” Kumar said.

“They would have definitely done that because the near $14 billion increase in reserves can’t alone be explained by revaluation and forward dollar deliveries.”

Forward dollar deliveries refer to the central bank taking deliveries of the U.S. currency from its forward book. The central bank had a net outstanding forward purchase position of $10.4 billion, according to RBI’s latest monthly bulletin.

Meanwhile, the central bank’s likely dollar purchases come amid a revival in foreign equity inflows. Overseas investors bought $3.7 billion of Indian equities so far this month, according to data from NSDL.