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Fall in currency, gold assets pulls down forex reserves by $1.1 billion

In the preceding week ended October 29, the foreign exchange — or forex — reserves had reported a strong growth of $1.919 billion to reach $642.019 billion, in touching distance of the record level of $642.453 billion seen in the week ended September 3.

By: ENS Economic Bureau | New Delhi |
November 14, 2021 4:02:12 am
The Reserve Bank data for the reporting week, released on Friday, showed that the overall reserves declined amid a fall in currency and gold assets.

The country’s forex reserves posted a decrease of $1.145 billion to reach $640.874 billion during the week ended November 5, according to data released by the Reserve Bank of India (RBI).

In the preceding week ended October 29, the foreign exchange — or forex — reserves had reported a strong growth of $1.919 billion to reach $642.019 billion, in touching distance of the record level of $642.453 billion seen in the week ended September 3.

The Reserve Bank data for the reporting week, released on Friday, showed that the overall reserves declined amid a fall in currency and gold assets

The foreign currency assets (FCA), considered an essential component of the forex reserves, decreased by $881 million to $577.581 billion for the week ended November 5, according to the RBI figures. In the previous week, the FCA had risen by a healthy $1.363 billion.

Expressed in dollar terms, the FCA includes the effect of appreciation or depreciation of non-US units like the euro, sterling and yen held in the forex reserves.

Meanwhile, the value of gold reserves decreased by $234 million to $38.778 billion in the reporting week, as per RBI figures.

The data also showed that the special drawing rights (SDRs) with the International Monetary Fund (IMF) decreased by $17 million to $19.287 billion.

Further, the country’s reserve position with the IMF fell $14 million to $5.228 billion in the reporting week, Friday’s data showed.

Falling forex reserves may cause issues for the government and the RBI in managing the nation’s external and internal financial issues. Higher reserves are 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. A better reserves position also helps the rupee strengthen against the dollar.

A rise in 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 its forex needs and external debt obligations, and maintain a reserve for national disasters or emergencies. The RBI functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with the government. It allocates the dollars for specific purposes.

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