Context:
India’s forex reserves increased from $7.6 billion to $638.26 billion during the week ending February 7, 2020, according to the RBI. The reserves have seen the third consecutive weekly rise, following an increase of $1.05 billion in the previous week.
Factors Responsible for the Increase
Rising in Foreign Currency Assets and Gold
- FCA increased by $6.42 billion to $544.11 billion.
- Increases of gold reserve by roughly $1.3 billion.
Forex Market Interventions By The RBI
- The RBI did conduct a buy sell swap worth 5 billion dollars on the 31st of January with an exercise date for the following week.
- The consequence of the above was offset by net dollar sales by the RBI in the spot market to contain the depreciation pressures on the INR.
- Hence, more than actual intervention, these valuation gains are seen as the true catalyst of reserve rises.
Enhanced Open Market Operations of The RBI OMOs
- The RBI has increased the amount due to be purchased under Omo from ₹20,000 crores to ₹40,000 crores in the next auction.
- This is symbolic of central bank intent to take another significant liquidity management initiative.
- The bond market is expecting further conduct of OMO auctions potentially anytime soon.
India’s forex reserves are getting bulked up and strengthened on the premise of valuation gains and increased gold holding while the RBI simultaneously intervenes in the FX market for currency stability.
