In two months RBI mops up $8 bn; NRI deposits surge

After purchasing $ 54.83 billion from the market in 2014-15, the Reserve Bank of India (RBI) is continuing its in the current year to build a strong foreign exchange kitty. The Central bank has purchased $ 8 billion from the market in spite of the volatile conditions in the stock market and outflow of foreign investment in the months of April and May.

The RBI also reported an 83 per cent jump in non-resident Indian deposits to $ 4.597 billion in the first two months.

The RBI was the net purchaser of US dollar for the second time this fiscal after it net bought $2.57 billion from the spot market in May. It bought $6.01 billion from the market and sold $ 3.43 billion in May, RBI said in its monthly bulletin. The amount purchased in the reporting month almost halved compared with RBI’s purchase of $ 5.43 billion in April.

Foreign investors pulled out Rs 5,768 crore in May and Rs 3,344 crore in June this year. While the Greek debt drama has been playing out for almost a week, there has been a net rise of Rs3,757 crore in foreign portfolio investment in the equity market in the month of July (till 8th). Indications from the market are that many of the funds are likely to turn away from Europe and China and increase their investments in India and other safe havens.

Significantly, the RBI has also reported a sharp rise in non-resident Indian deposits in the first two months of the current fiscal. NRIs brought $4.597 billion as against $2.507 billion in the first two months of the previous year. Of this, as much as $ 3.144 billion came through the non-resident external rupee account scheme and $1.325 through the FCNR scheme.

India Ratings expects increased global market volatility to weigh on the rupee in the near term. However, record high forex reserves at $355 bn and rising imports cover at eight months will provide a cushion against sharp volatility. Indian corporates might face higher cost of funding in the overseas market in the short-run due to the economic fallout in Greece while the overall impact on the Indian economy will be limited, it says.

Although Indian companies have limited direct exposure to Greece, they may feel some pain in the short term since a slew of them have been tapping international markets for cheaper funding relative to home country. In 2014-15, the RBI had net purchased $54.83 billion. It had bought $124.41 billion and sold $69.57 billion in the previous fiscal.