India’s foreign exchange (FX) reserves rose by about $3.9 billion to over $600 billion in the week that ended on May 27, providing relief for a country when its largest import, crude oil, remains elevated.
After languishing below $600 billion for over a month and falling for 10 straight weeks, the country’s import cover has increased for the second week in a row and comes at a time when the rupee has repeatedly hit all-time lows and is trading well over 77 per dollar, a level hit in March for the first time.
Scaling back bets on the dollar has helped the rupee somewhat, and the Reserve Bank of India’s intervention to prevent wild moves has also boosted the currency.
The RBI’s weekly statistical supplement data showed that the country’s FX reserves rose by $3.854 billion to $601.363 billion in the May 27 week.
Investors at the moment have mixed views on the greenback, which is still close to two-decade highs against a basket of peers.
George Saravelos, global head of forex research at Deutsche Bank, told Reuters that the dollar is “pricing a safe-haven risk premium that is so extreme it rarely has persisted over time and is now in the process of unwinding.”
But bullish analysts argue that the US Federal Reserve’s tightening cycle is based on a sturdier growth story than Europe’s, especially after the Russian oil embargo, which might hurt the euro zone economy.
While India’s import cover is risen back up to over $600 billion, a healthy sign, the latest trade moves in the rupee point to further erosion of the country’s FX war chest.