Indian forex reserves crossed $400-billion mark for the first time last week. Currently, the reserves are enough to fund more than a year of imports. Foreign exchange reserves have increased by $6.6 billion during the first quarter. The reserves have risen by $30 billion since Urjit Patel took charge as RBI governor in September 2016. The increase provides the RBI with ammunition to tackle volatility in the forex market.
The highest contribution to the reserves has been from foreign portfolio investors. During the April-September quarter, foreign direct investment surged by $7.2 billion in the reporting period from $3.9 billion in the same period last year. Foreign institutional investment flows increased by $11.9 billion in the first quarter from $1.2 billion in the same period last year.
The central bank's buildup of reserves comes ahead of the US Federal Reserve exiting its stimulus -a move which is expected to result in funds moving back into US dollar assets. Accretion to reserves are expected to slow down with a widening of the current account deficit (CAD) and rising crude oil prices. Foreign institutional investors have pulled out $810 million from the equity market in September on the back of $1.7 billion in August.
