India’s biggest jump in foreign-exchange reserves
in two years offers the nation greater ammunition to support the rupee as U.S.
policy makers debate when to pare back monetary stimulus.
The reserves rose $6.7
billion in October to $283 billion, the steepest monthly increase since 2011,
after central bank Governor Raghuram Rajan offered concessional dollar-swaps for lenders to spur
inflows. Bank of America Merrill Lynch estimates they will reach $305 billion
by the end of March, the month the U.S. Federal Reserve is forecast to pare
bond purchases.
A stable exchange rate would help contain the cost
of imports as Rajan fights Asia’s fastest
consumer-price inflation to protect the more than 800 million Indians living on
less than $2 per day. The rupee has climbed about 8.5 percent since slumping to
a record low in August, when speculation of Fed tapering as early as the
following month led investors to pull billions of dollars from emerging markets.
The Fed will pare the monthly pace of bond buying
to $70 billion at its March 18-19 meeting from the current $85 billion.
The rupee, down 13.5 percent in the past 12 months,
weakened 0.3 percent to 63.45 per dollar in Mumbai. The S&P BSE Sensex
share index rose 0.4 percent, while the yield on the 7.16 percent government
bond maturing in May 2023 was little changed at 9 percent.
The currency has fallen this week after U.S. jobs
data bolstered the case for the Fed to trim stimulus. U.S. payrolls rose
204,000 in October.
India’s foreign-exchange reserves were at $281
billion as of Nov. 1, according to the central bank. That’s the smallest in the
BRIC group, which also includes Brazil, Russia and China.
China has $3.66 trillion of foreign reserves,
Russia about$514 billion and Brazil $376 billion.