Sustained inflows main cause, import cover of 11-12 months

The country’s foreign exchange reserves touched al-time high of $372.7 billion, according to latest data released by the Reserve Bank of India (RBI), on the back on sustained inflows.

According to RBI, total reserves increased by $1.59 billion during the week ended April 28 mainly due to rise in foreign currency assets which rose by $1.57 billion. According to economists, this level of reserves can cover 11-12 months of imports.

While gold reserves stayed steady, the special drawing rights with the International Monetary Fund increased by $8.5 million to $1.460 billion, and the reserve position with the Fund rose by $15.8 million to $2.35 billion, according to the central bank.

Foreign investors have pumped in $7.7 billion in debt and $6.3 billion in equities since the beginning of the year.

Following the inflows of both debt and equity, the rupee has appreciated around 6% against the dollar in 2017, and has become one of the best performing currencies in Asia.

The central bank has been intervening in the foreign exchange market but the quantum of intervention is limited, dealers said, as such a move could stroke inflation since there is already a liquidity surplus in the system to the tune of ₹4 lakh crore. Earlier this year, RBI has changed its monetary policy stance from accomodative to neutral due to inflation concerns.

The equity markets have also at all-time high levels following positive investors sentiment as the Sensex hit 30,000 last week and the Nifty hit fresh all time high on Thursday when it touched 9359.9 points.

The last all time high was achieved when foreign exchange reserves was at 371.99 billion, on the week to September 30, 2016.

Reserves plunged during the currency crisis three and half years back when it touched around $ 274 billion in August 2013.