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Tuesday, June 15, 2021

Currency assets, gold gain drive forex reserves to new peak

The previous all-time high for the foreign exchange — or forex — reserves was $590.185 billion in the week ended January 29, 2021.

By: ENS Economic Bureau | New Delhi |
May 30, 2021 3:30:44 am
In the preceding week ended May 14, the forex kitty had swelled by $563 million to $590.028 billion,

The country’s forex reserves gained by $2.865 billion to a record high of $592.894 billion for the week ended May 21, boosted by gold and currency assets, RBI data showed on Friday.

In the preceding week ended May 14, the forex kitty had swelled by $563 million to $590.028 billion, The previous all-time high for the foreign exchange — or forex — reserves was $590.185 billion in the week ended January 29, 2021.

Sustained foreign direct investment (FDI) and foreign portfolio investor (FPI) inflows have been driving the gains in reserves for more than a month now, which started with a gain of $4.344 billion recorded during the week ended April 9.

In the reporting week ended May 21, the foreign currency assets (FCA) — a major component of the overall reserves — swelled by $1.649 billion to $548.519 billion, according to data from the Reserve Bank of India (RBI) released Friday.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

After remaining almost unchanged in the previous week, gold reserves gained by $1.187 billion to $37.841 billion, the central bank data showed.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) increased by $7 million to $1.513 billion.

The country’s reserve position with the IMF too increased by $22 million to $5.021 billion in the reporting week, according to the Reserve Bank data.

The rising forex reserves could bring some comfort to the government as well as the Reserve Bank in managing the nation’s external and internal financial issues at a time when the economy is facing Covid stress once again and it could have an impact on the GDP growth rate for the ongoing fiscal as states are announcing lockdowns. It is a big cushion in the event of any crisis on the economic front and enough to cover India’s import bill for a year.

An increase in the forex kitty could also help strengthen the rupee against the US dollar

Higher reserves could bring confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations, and maintain a reserve for national disasters or emergencies.

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