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Wednesday, January 19, 2022

Forex reserves slide for fourth straight week amid decline in currency assets

🔴 For the previous week ended December 10, the foreign exchange — or forex — reserves had fallen by $77 million to $635.828 billion.

By: ENS Economic Bureau | New Delhi |
Updated: December 26, 2021 2:21:41 am
foreign exchange, forex kitty, Reserve Bank of India RBI, business news, Indian expressExpressed in dollar terms, the FCA include the effect of appreciation or depreciation of non-US units such as the euro, pound sterling and Japanese yen held in the foreign exchange reserves.

Recording a fall of $160 million, the nation’s forex reserves declined to $635.667 billion during the week to December 17, according to data from the RBI.

For the previous week ended December 10, the foreign exchange — or forex — reserves had fallen by $77 million to $635.828 billion. The forex kitty had reached an all-time high of $642.453 billion during the week ended September 3, 2021.

For the reporting week ended December 17, the decline was mainly due to a fall in foreign currency assets (FCAs), a vital component of the overall reserves. This is the fourth straight week of fall in the reserves.

FCAs tumbled by $645 million to $572.216 billion, weekly data released by the Reserve Bank of India (RBI) showed on Friday.

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

Gold reserves rose by $475 million to $39.183 billion in the reporting week.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) remained unchanged at $19.089 billion.

The country’s reserve position with the IMF increased by $9 million to $5.179 billion in the reporting week, as per the data.

Falling forex reserves may cause issues for the government and the Reserve Bank 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. They also strengthen the rupee against the US dollar.

An increase in reserves also provide a level of confidence to markets that a nation 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 Reserve Bank 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.

For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $250,000 every year. The RBI uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens.  WITH PTI

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