Indian forex reserves approaching $200B

Both ET & FT reported on the continuing rise in India’s foreign exchange reserves over the past week. Here’s what the RBI stated in its latest weekly supplement:

The weekly increase of $4.2B is relatively large - supposedly driven by capital inflows. Note that the RBI hasn’t increased its gold allocations proportionately. Also, the rupee weakened last week, despite the rapid rise in forex reserves.

ADB: Slower growth, (Mis)use of forex reserves

The Asian Development Bank came out with two pieces of not-so-good news for India:

• Asia Economies to Grow Faster Than Expected
  • Rising incomes in China, India and other Asian economies are boosting consumer spending and encouraging companies to lift investment, BUT
  • Policy makers in India may add to the five rate increases carried out in the past year to cool price increases.

• ADB slams core sector financing with forex
  • With more rupees flowing into the financial system, there will be more liquidity — over which Reserve Bank of India has been trying to keep a tight leash — and could make the task of controlling inflation through monetary policy interventions more arduous.
  • The plan to allow IIFCL subsidiaries to borrow RBI’s foreign exchange reserves and use them as collateral for larger international loans also runs the risks associated with large foreign investment inflows.