The Reserve Bank of India’s (RBI’s) foreign exchange reserves surged by $10.42 billion to a five-month high of $572 billion in the week ended January 13, latest data showed. The reserves were at $572.98 billion in the week ended August 5, 2022. The rise in the RBI’s reserves is the sharpest since the week ended December 2, 2022.

According to analysts the increase in the reserves was owing to a positive valuation impact in the face of a weaker US dollar as well as likely purchases of the American currency by the RBI. For the week ended January 13, the RBI’s foreign currency assets jumped $9.1 billion to $505.52 billion, the data showed. In the previous week, the US dollar index weakened sharply as data showed slowing inflation in the country, strengthening the case for the Federal Reserve to reduce the pace of its monetary tightening.

The rupee gained 1.7 per cent versus the US dollar in the previous week, strengthening past the 82 per dollar mark. “The overall balance of payments has improved and so have valuations.

There were likely some dollar purchases by the RBI.

That can be seen from the improvement in the liquidity situation in the banking system,” Soumyajit Niyogi, director, India Ratings - Research said. “Moreover, the fourth quarter is typically favourable for flows, whether through export of software services or for debt-equity flows,” he said. Following a decline of $100 billion in its reserves from February to September of 2022, the RBI has over the past couple of months been replenishing its foreign exchange reserves. “The RBI has aggressively bought the dollar to support the local currency from sharp appreciation.

It has absorbed the dollar inflows (Start-up funding inflows).

The appreciation in gold and non-dollar assets also reflected the forex reserves gains,” HDFC Securities research analyst Dilip Parmar said. The foreign exchange reserves increased by $28.9 billion since September-end and stood at $561.6 billion as on January 6, covering more than nine months of imports projected for 2022-23,” RBI staff said earlier this week.

In November 2022, the central bank net purchased US dollars for the first time since May 2022. From June to October of 2022, the RBI was a net seller of US dollars in the currency market as the central bank sought to rein in excessive volatility in the rupee’s exchange rate amid aggressive rate hikes by the Federal Reserve.