India’s forex reserves dipped marginally by $192.8 million to $295.52 billion last week after having risen for five consecutive weeks, data from the Reserve Bank of India showed. Reserves are still near six-month high, thanks to the dollars garnered by the central bank through its two concessional swap windows opened in September.
The concessional swap facilities were announced on September 4, under which banks can swap dollars raised through foreign currency non-resident (FCNR) deposits and overseas borrowings with the RBI. The two swap windows garnered a total $34 billion for the RBI, of which $26 billion was through FCNR and $8 billion through bank capital.
Following the RBI’s measures, India’s reserve position is stronger in relation to other emerging market economies, especially Indonesia, Brazil, South Africa and Turkey as these have similar large current account deficits.
Market participants believe the boost to the reserves has added a safety net to the rupee, which was otherwise feared to be badly hit once the US Federal Reserve begins tapering its quantitative easing.
On Wednesday, the Fed announced that it would pare its monthly bond purchases by $10 billion from January, thus putting an end to a massive stimulus programme initiated in the aftermath of the global financial crisis.
The rupee has outperformed its Asian peers, and especially currencies of countries that have a current account deficit like India.
Indeed, the rupee has been flat since the taper announcement while the Turkish Lira, the South African Rand, the Brazilian real and the Indonesian rupiah have all weakened by at least 1%. Among emerging market economies, Indonesia, Brazil, Turkey, South Africa and India were said to be in a weak position with regards to their forex reserves, economic growth and their huge current account deficits.