A BofA Securities report estimates that the Reserve Bank of India should be able to sell $50 billion of forex to protect the rupee
India’s forex reserves rose $3.1 billion to hit a record high of $516.36 billion for the week ended July 10, according to the latest data from the Reserve Bank of India. In the week prior to that, forex reserves stood at $513.5 billion.
Foreign currency assets (FCAs), which form a key component of reserves, rose $2.372 billion to $475.635 billion. FCAs are maintained in major currencies like the US dollar, euro, pound sterling and Japanese yen. Movement in the FCA occurs mainly on account of purchase or sale of foreign exchange by the RBI, income arising out of the deployment of foreign exchange reserves, external aid receipts of the government and revaluation of assets.
Gold, another component of reserves, rose by $712 million to $34.729 billion. Special drawing rights (SDRs) from the IMF increased $5 million to $1.453 billion while reserve position with the IMF increased $19 million to $4.545 billion.
A BofA Securities report dated July 13 estimates that the RBI should be able to sell $50 billion of forex to protect the rupee, and even after that the import cover for over 12 months would be retained.
We continue to expect the RBI to buy $45 billion of forex ($25 billion so far) in FY21, atop $45 billion in FY20, assuming a flat current account at our oil strategists’ $43.7/bbl forecast and $7 billion of FPI inflows. We find risks evenly balanced. Any improvement in export demand, due to global recovery, will likely be neutralised by higher domestic import demand. Further, higher (lower) FPI flows, due to risk on/off should get offset by higher/lower oil prices. On balance, we continue to expect the RBI to switch to buying in forwards to fund a higher fiscal deficit, the report stated.
This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.