The nation’s foreign exchange reserves rose by $2.296 billion to reach $537.548 billion in the week to August 21, the Reserve Bank of India (RBI) data showed.
In the previous week ended August 14, the reserves had declined by 2.939 billion to $535.252 billion. The forex kitty had increased by $3.623 billion to reach a record high of $538.191 billion in the week ended August 7.
In the reporting week, the increase in reserves was mainly due to a jump in foreign currency assets (FCAs), a major component of the overall reserves. FCAs rose by $2.618 billion to $494.168 billion in the reporting week, the central bank data showed.
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. The gold reserves were down $331 million in reporting week to $37.264 billion.
The special drawing rights with the International Monetary Fund (IMF) rose $2 million to $1.481 billion. The country’s reserve position with the IMF also increased by $6 million to $4.634 billion during the reporting week, the data showed.
The rise has been in several stages and has been led by different factors over the last ten months. Experts say that the rise in foreign exchange inflows through Foreign Portfolio Investment (FPIs) and Foreign Direct Investment (FDI ) has also been supported by decline in import bill over the last 4-5 months on account of dip in crude prices and trade impact following Covid-19 pandemic.
Rising forex reserves give a lot of comfort to the government and the Reserve Bank of India in managing India’s external and internal financial issues at a time when the economic growth is set to contract by 5.8 per cent in 2020-21. It’s a big cushion in the event of any crisis on the economic front and enough to cover the import bill of the country for a year. Reserves will provide a level of 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 foreign exchange needs and external debt obligations.
– With PTI
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