Forex reserves cross record $600 billion-mark to hit new high

India’s foreign exchange reserves crossed the $600 billion-mark for the first time to touch a new high of $605 billion as on June 4, showed data released by the Reserve Bank of India (RBI) on June 11.

The value of foreign currency assets with the central bank stood at $560.89 billion, while that of gold reserves was $37.6 billion. Special drawing rights were to the tune of $1.5 billion and the reserve position in the International Monetary Fund was $5 billion, as on 4 June.

Forex reserves have swelled as a result of large fund inflows from overseas markets in recent weeks. RBI Governor Shaktikanta Das had said on June 4 that after a risk-off period of retrenchment in April-May, the prospects for capital flows to India are improving again. “While these flows ease external financing constraints, they also impart volatility to financial markets and asset prices, while producing undesirable and unintended fluctuations in liquidity that can vitiate the monetary policy stance,” Das said.

The fluctuations in liquidity have necessitated two-sided interventions by the RBI in the spot, forward and futures markets to stabilise financial market and liquidity conditions so that monetary policy can serve its goals, Das said. The RBI engages in both purchases and sales in the forex market and its various segments. “The success of these efforts is reflected in the stability and orderliness in market conditions and in the exchange rate in spite of large global spillovers,” Das said, adding that the accumulation of reserves imparts strength to the country’s balance sheet.

Responding to a question on whether additional tools are needed to prevent spillovers from the forex market affecting short-term rates in the money markets, Das said there is no such need. “At the moment, we feel that there is no necessity for deploying any additional tool to sterilise the liquidity inflow or by way of foreign exchange inflows,” Das observed.

At the end of the day, the central bank is also keeping its daily reverse repo window open parallel to variable reverse repo auctions. So additional liquidity is getting sterilised on a daily basis, Das said. “So, therefore, with regard to additional tool deployment, it will depend on how the situation evolves,” Das added.