Economists said the key reasons behind the sharp rise in reserves were the revaluation in the dollar index and the foreign exchange swaps by the RBI on February 28.
The RBI did a $10 billion dollar-rupee buy-sell swap on February 28 to address the deficit banking system liquidity, where the central bank bought dollars in exchange for rupees.
On the other hand, the dollar index has been weakening and touched a four-and-a-half-month low at 103 levels as of March 7, easing from around 110 in early January, when it was driven up by safe-haven dollar demand, LSEG data showed.
“There was the FX swap, but the RBI also intervened in the foreign exchange market. On a net basis, the RBI purchased $4.5 billion, and the rest was due to revaluation gains due to a weak dollar index,” said Gaura Sengupta, chief economist at IDFC First Bank.
The central bank intervenes in the foreign exchange market by selling dollars to smoothen the volatility in the rupee.
Within the total reserves, foreign currency assets increased by $13.9 billion to $557.8 billion, while gold reserves rose by $1 billion to $74.3 billion, according to the RBI data.
Market participants will, however, factor in the large short positions by the central bank in the forwards segment while calculating the foreign exchange reserves, experts said.
The RBI’s short positions in the foreign exchange market reached a record high in January at $77.5 billion, data showed.
The central bank sells dollars when short positions mature, which could impact the total foreign exchange reserves.
