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Forex reserves see fourth week of gains, close to all-time high

With the latest gain, the forex kitty posted its fourth successive week of gains — starting with a rise of $4.344 billion to reach $581.213 billion during the week ended April 9.

By: ENS Economic Bureau | New Delhi |
May 9, 2021 12:54:12 am
In the week ended April 16, the reserves had swelled by $1.193 billion to $582.406 billion.

The forex reserves registered a growth of $3.913 billion to reach $588.02 billion during the week ended April 30, data released by the RBI showed. In the previous week ended April 23, the reserves had risen by $1.701 billion to $584.107 billion.

With the latest gain, the forex kitty posted its fourth successive week of gains — starting with a rise of $4.344 billion to reach $581.213 billion during the week ended April 9.

The latest boost also placed the reserves in touching distance of the all-time high of $590.185 billion, recorded in the week ended January 29.

In the week ended April 16, the reserves had swelled by $1.193 billion to $582.406 billion.

According to data released by the Reserve Bank of India (RBI) on Friday, during the reporting week ended April 30, the rise of reserves was on account of an increase in foreign currency assets (FCAs), a major component of the overall reserves.

FCAs increased by $4.413 billion to $546.059 billion, as per the weekly data by the RBI.

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

Gold reserves, meanwhile, declined by $505 million to $35.464 billion during the reporting week, according to the central bank data.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) rose $3 million to $1.508 billion for the week ended April 30.

The country’s reserve position with the IMF rose by $2 million to $4.99 billion in the reporting week, the RBI data showed.

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.

The RBI functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with the Centre. It allocates the dollars for specific purposes. For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $2,50,000 every year.

The central bank uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys dollar when the rupee strengthens.

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