Even as the coronavirus pandemic continued to spread and impact inflow of funds by foreign portfolio investors, foreign exchange reserves hit an all-time high of $490 billion in the week-ended May 22 on account of foreign direct investments (FDI), net inflow of funds by FPIs in domestic equities over the last couple of weeks and a sharp decline in import expenditure following impact of pandemic on global trade.
While the foreign exchange reserves started to decline after hitting a high of $487 billion in the week ended March 6 on account of the pandemic, it has risen over the last four consecutive weeks and has grown by $10.5 billion from $479.5 billion on April 24 to $490 billion on May 22.
In the week ended May 22, the foreign exchange reserves, however, grew by $3 billion. RBI data shows that foreign currency assets grew by $3 billion, leading to the rise in the reserves.
The rise in foreign exchange reserves have resulted into strengthening in the value of the rupee against the US dollar. While the rupee had fallen to a low of 76.97 on April 21, it closed at 75.6 on May 29. In May, FPIs invested a net of $1.92 billion into Indian equities after pulling out a record $10.3 billion in March and April 2020.
“The rise in forex reserves is on account of the rise in FPI and FDI inflows and a reduction in import outgo. While the exports have also declined, the fall in imports is more since we are net importers and that helps the forex reserves,” said DK Pant, chief economist, India Ratings. While the pandemic has pushed investors to seek refuge in safer investment destinations and instruments, leading to outflow of funds in March and April, there has been a relative calm on that front in May. The continuing low levels of Brent crude oil prices have also benefitted India and its foreign exchange reserves.
Earlier, India’s foreign exchange reserves had a smooth run for nearly six-months as they rose week-on-week between September 20, 2019 and March 6, 2020.
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