India’s weekly forex reserves rise by $10.42 bn to hit 5-month high of $572 bn

In the week ending January 13, the reserves surged by $10.417 billion to $572 billion. This is far higher better performance compared to the previous week which ended on January 6 where reserves stood at $561.58 billion down by $1.268 billion week-on-week basis.

Reserves scaled up by $14.721 billion during a week in October last year which was also the month when it hit a two-year low of 524.52 billion. While in October 2021, the reserves touched an all-time high of $645 billion.

India’s forex reserves have been under pressure since last year as RBI intervened in both the spot and forward markets to tame the weakening in the rupee against the US dollar amidst macroeconomic uncertainties.

Further, in the week ending January 13, 2023, foreign currency assets surged by a whopping $9.078 billion to $505.519 billion. During the week ending January 6th, this major component in reserves dropped by $1.747 billion to $496.441 billion.

Also, gold jumped by $1.106 billion to $42.890 dollars in the week ending January 13, while SDRs were up by $147 million to $18.364 billion. The reserve position in the IMF was also up by $86 million to $5.227 billion.

On Thursday, at the interbank forex market, rupee made its biggest gain in the current week against the dollar, however, restrained from moving past the key 81.10 level. Firmness in Asian currencies amidst the subdued dollar lifted the Indian rupee. The local unit finished at 81.12 against the US currency compared to the previous day’s closing of 81.36 per dollar.

In its latest economic report dated January 20, Taimur Baig, Chief Economist, and Daisy Sharma, Data Analytics at DBS Group Research on India said, “these days, India is the darling of the global investor community. Seen as a major potential winner of the China-plus-one strategy for global manufacturing, India is poised to received large investment inflows into its economy and markets. Financial markets are buoyant, credit and consumption demand is strong, and despite exports growth coming to a standstill, purchasing manager’s surveys indicate strong confidence in the near term outlook.”

Still, the duo’s note added, “our model is indicating that India is heading into a sub-5% growth trajectory. This should not be a major source of surprise, as high-interest rates, slumping exports, and fiscal consolidation are subtracting from real GDP growth.”

Earlier this week, in a research note, Kunal Vora, Head – India Equity Research, BNP Paribas India said, in 2023, the International Monetary Fund (IMF) expects India to be one of the fastest-growing large economies with improving economic fundamentals. FY23’s fiscal position looks intact with more than budgeted nominal GDP growth and buoyant direct tax and GST collections. With the moderation in energy prices, the worst of the pressure on CAD and INR depreciation pressure seems likely behind. RBI is near the end of the tightening cycle, and is expected to ease its hawkish rhetoric as a result of the decline in inflationary pressure.

So far in FY23, RBI has hiked the repo rate by 225 bps to 6.25% to tame inflation.

Vora added, “Our economists expect the RBI policy rate to likely be raised to the neutral rate, along with the easing of the hawkish rhetoric, as a result of a decline in inflationary pressure. The absence of RBI measures to shore up liquidity via variable repo rate (VRR) auctions suggests the central bank remains comfortable with banking system liquidity which has dropped to pre-Covid levels.”

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