RBI buys $19.1 bn forex forwards in May to shore up reserves

MUMBAI: The Reserve Bank will continue to shore up its forex kitty after having bought USD 19.1 billion of short-term forwards in May following improvement in investor confidence post Narendra Modi-led BJP's victory in the general elections, a report said today.

RBI will continue to purchase when the rupee trades at 58-60 against the US dollar, said the Bank of America-Merrill Lynch report.

BofA-ML India chief economist Indranil Sen Gupta said RBI will recoup forex when the rupee is around 58-60/USD.

He noted that shoring up the forex cover is needed as the import cover has halved to about eight months, a level not seen since 2008. And for the RBI to maintain this level of forex cover it has to accrue USD 14.5 billion annually.

Quoting the just-released SDDS data from the IMF which showed the RBI bought USD 19.1 billion of short-term forwards in May, Gupta said: "We grow more confident of our call that Governor Raghuram Rajan will recoup forex to build the 'bullet-proof national balance sheet' he had talked of earlier".

According to the IMF's SDDS data, RBI bought USD 19.1 billion of short-term forwards in May reaping the advantage of improved investor confidence after the Modi win.

This brought down the net outstanding forward forex sales to USD 11.4 billion from USD 32 billion at end April. The bulk of these short-term long forward positions will mature in the second half of the current fiscal.

As per the latest RBI data, the forex reserves rose USD 1.385 billion to USD 314.92 billon, close its record high of USD 320 billion in September 2011.