PremiumThe latest weekly climb in India's forex reserves is the biggest in more than a year. As per economists, this big jump in reserves is likely due to softening in the dollar and changes in the central bank's forward book. As per RBI's latest data, India's forex reserves soared to $531.081 billion in the week ending October 28, 2022.
In the week ending October 28, the forex reserves climbed by $6,561 billion compared to the previous week --- the highest gain since September 2021. All the indicators of forex reserves recorded an upside.
Foreign currency assets (FCA) which is the major component in reserves, rose by $5,772 billion to $470.847 billion in the week ending October 28, while gold reserves grew by $556 million to $37.762 billion, SDRs by $185 million to $17,625 billion, and the reserve position with IMF climbed by $48 million to $4,847 billion compared to the previous week.
According to a Reuters report, Vivek Kumar, an economist at QuantEco Research said, this is predominantly due to revaluation changes on the back of the decline in the dollar. He added, another thing that could have led to this is the changes in RBI's forward reserves.
During the week ending October 28, the US dollar dropped by about a percent against world currencies, while long-term Treasury yields also tumbled.
As per the RBI's latest bulletin, the central bank had a forward net dollar sales position of $8.2 billion of expiry less than one month as of August 31, on the other hand, its outstanding dollar purchase position was around $9.5 billion in one-month to a three-month bucket.
In Kumar's view, it could be that the central bank had taken delivery of the forward dollars at maturity.
Furthermore, Reuters reported Madan Sabnavis, chief economist at Bank of Baroda said, while RBI mostly squares up their forward positions, if they took delivery of the forward dollar purchases, it would lead to an increase in reserves. The economist also added that it was difficult to reconcile the weekly changes in reserves.
According to the Bank of Baroda economist, revaluation changes, portfolio flows and trade deficit flows are the key measurable to assess the trend on forex reserves.
So far, in 2022, the Indian currency has weakened by more than 10% against the dollar -- the biggest losing streak in almost four decades. In October alone, the currency depreciated by 1.55% against the greenback.