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Fall in currency assets, gold pulls forex reserves off record high

The foreign currency assets (FCA), a vital component of the overall reserves, declined by $1.358 billion to reach $576.374 billion during the week ended August 13, data by the Reserve Bank of India (RBI) on Friday showed.

By: ENS Economic Bureau | New Delhi |
August 22, 2021 12:56:45 am
Expressed in dollar terms, the FCA includes the effect of appreciation or depreciation of non-US currencies such as the euro, pound sterling and Japanese yen held in the foreign exchange reserves.

The nation’s forex reserves decreased by $2.099 billion to stand at $619.365 billion for the week ended August 13, as a result of a decline in core currency assets as well as gold reserves, data released by the Reserve Bank showed. In the previous week ended August 6, the foreign exchange — or forex — kitty had seen a rise of $889 million to reach a lifetime high of $621.464 billion.

The foreign currency assets (FCA), a vital component of the overall reserves, declined by $1.358 billion to reach $576.374 billion during the week ended August 13, data by the Reserve Bank of India (RBI) on Friday showed.

Expressed in dollar terms, the FCA includes the effect of appreciation or depreciation of non-US currencies such as the euro, pound sterling and Japanese yen held in the foreign exchange reserves.

For the second consecutive week, the value of gold reserves saw a fall, dropping $720 million to $36.336 billion, data for the reporting week showed.

Meanwhile, the special drawing rights (SDRs) with the International Monetary Fund (IMF) saw a reduction of $7 million to reach $1.544 billion.

The country’s reserve position with the IMF also decreased by $14 million to $5.111 billion, as per RBI data.

An increase in the 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 gross domestic product (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. A higher forex kitty could also help strengthen the rupee against the dollar.

A growth in 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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