India overtakes Russia to become world’s 4th largest forex holder
Mumbai: India has become the world’s fourth-largest holder of foreign exchange reserves after a record surge in dollar inflows triggered by the Reserve Bank of India’s (RBI) foreign currency non-resident (bank) (FCNR(B)) deposits scheme, according to data.
India’s foreign exchange reserves increased by a record $44.9 billion to reach $785.7 billion during the week ended September 4, dislodging Russia from the fourth position. India now ranks behind only China, Japan and Switzerland, data compiled by Bloomberg showed.
The record rise in the forex kitty came despite a $2.59 billion decline in the gold reserves component to $113.81 billion during the week, following a fall in gold prices.
An increase in foreign exchange reserves reflects strong economic fundamentals and gives the RBI greater headroom to stabilise the rupee during periods of volatility.
A strong forex kitty enables the RBI to intervene in the spot and forward currency markets by releasing dollars to prevent the rupee from going into a free fall.
Meanwhile, the RBI has announced a Rs 1 lakh crore open market operation (OMO) sale of government bonds to absorb excess liquidity in the banking system resulting from the strong foreign currency inflows.
The RBI will sell government securities worth Rs 1 lakh crore in three tranches: Rs 50,000 crore on September 17, Rs 25,000 crore on September 21 and another Rs 25,000 crore on September 28.
The auctions will be conducted through the multiple-price method using a multi-security auction.
Earlier, the RBI had raised more than Rs 3.53 lakh crore through an overnight Variable Rate Reverse Repo (VRRR) auction with a one-day tenor on Monday to absorb surplus cash from the banking system.
A VRRR auction is a monetary policy tool used by a central bank to absorb excess cash from the banking system and ensure financial stability in the economy.
The RBI has stepped up liquidity absorption operations as the banking system has been flooded with funds following large inflows through the special FCNR(B) deposit scheme.
The RBI’s special dollar-rupee forex swap facility for FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCB) and External Commercial Borrowings (ECB), launched on June 8 this year, has driven an unprecedented surge in foreign exchange inflows into the country, amounting to $73 billion in less than 11 weeks since its launch.
The response was strong enough for the RBI to advance the closure of the FCNR(B) window from September 30 to August 31, after the central bank had already achieved its objective ahead of schedule.
With IANS inputs