Valuation gains on both euro and gold contribute to increase.
After topping pre-crisis levels, India’s foreign exchange reserves have posted a new high of $319 billion as on July 29, according to data from the Reserve Bank of India (RBI). While foreign currency assets have grown in tandem, appreciation in gold reserves has also contributed.
“Valuation gains, on both euro and gold, seem to be the primary driver for the increase in the foreign exchange reserves,” said Samiran Chakraborty, regional head of research (India), Standard Chartered Bank. In an uncertain global environment, rising foreign exchange reserves should provide some comfort to RBI, he added.
India’s gold reserves are at an all-time high of $25,349 million as on July 29. Foreign currency assets are at $286 billion, still lower than the high of $306 billion two years ago.
The euro was at 1.4212 against the dollar on Friday as compared to 1.5991 as on April 22, 2008, and 1.5991 as on June 7, 2010. The dollar index was at 74.72 on Friday as compared to 89.11 as on March 5, 2009, and 71.33 as on April 22, 2008.
“There hasn’t been much accretion in foreign currency assets which is evident in the fact that RBI hasn’t intervened in the exchange market lately,” said A Prasanna, economist, ICICI Securities Primary Dealership.
RBI’s intervention in the foreign exchange market has been only four times since April 2010. Prasanna adds that coupon inflows on investments already made could also be one of the contributing factors.
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Going forward, RBI’s investments may suffer due to low interest rates in the global markets. Its deputy governor
K C Chakrabarty on Friday said the central bank would diversify its foreign exchange reserves to prevent any devaluation of its dollar assets. It was not easy to move away from investing in US Treasury, he said.
As on July 29, the special drawing rights were down by $16 million to $4.6 billion over a week and the reserve position in the International Monetary Fund also decreased by $10 million to $3 billion in the same period.