India’s foreign reserves rise, expected portfolio inflows may ease pressure on depreciating rupee

After India’s Union Budget FY2016-17 was released at the end of February, foreign investors added local equities worth a total of USD 2.87 billion to their holdings. Furthermore, since 16 March, the investors bought local bonds of net USD 644 million. According to Scotiabank, additional portfolio inflows might take place with the prospect of additional monetary easing in April. This will further ease the declining pressure on the rupee.

“We maintain our short EUR/INR cross position with a target at 70”, says Scotiabank.

The purchase of foreign currencies by the Reserve Bank of India amidst portfolio inflows might smooth rupee’s FX vols and stock up India’s foreign reserves, added Scotiabank. A recent data indicated that the nation’s reserves increased to USD 355.9 billion as of 18 March. Meanwhile, RBI might be required to increase rupee funds to deal with of current liquidity deficit. Prime Minister Modi said yesterday that the central bank’s monetary panel will not have any government member.