Foreign exchange reserves crossed $400 billion for the first time in four months in the week ended February 1, 2019, according to data released by the Reserve Bank of India. Total forex reserves grew over $2 billion from $398.17 billion in the week ended January 25 to hit a four-month high of $400.2 billion on February 1.
While forex reserves had hit a high of $426 billion in the week ended April 13, 2018, it witnessed a steady slide over the following months and went down to $392 billion in the week ended October 26 last year, on account RBI intervention to manage the rupee, which slipped to all time lows in October 2018 following sharp rise in crude oil prices and outflows by foreign institutional investors
In October last, the rupee had fallen to its all time low of 74.34 against the dollar in line with the rising oil prices and the RBI had to intervene to stem the slide of rupee against the dollar, following capital outflows from the debt and equity markets. The Brent crude prices had hit a high of around $86 per barrel putting pressure on rupee and current account deficit.
However, as the oil prices fell over the following months to levels of around $52 per barrel by the end of December 2018, it offered a much needed relief to the rupee and the economy. Though fund outflows by foreign portfolio investors in September and October from both equity and debt markets amounted to nearly Rs 60,000 crore, putting additional pressure on rupee against the dollar, FPI fund flows, stabilised over the following months and between November and December 2018. In these months, they invested a net of over Rs 17,000 crore in the equity and debt markets providing some strength to the rupee.
A significant part of the relief to rupee came on account of decline in crude oil prices. The Brent crude is currently trading at levels of around $62 per barrel and the rupee closed at 70.8 against the dollar on Wednesday. While the forex reserves, fell in line with rising oil prices and FPI outflows, the decline got arrested in November and they started to rise beginning January 2019. Over the last one month they have risen from $393 billion to $400 billion.