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Forex reserves slip from all-time high on FPI outflows, rising crude prices

Sources say a rise in crude prices result in higher payout for oil import leading to a dip in reserves.

By: ENS Economic Bureau | Published: June 27, 2020 12:57:31 am
forex reserves, india forex reserves, fpi increase, oil prices, oil price hike In the week ended June 19, while the FPIs pulled out a net of 2 million, the Brent crude oil prices rose by nearly 10 per cent from .54 per barrel to .33. (Representational Image)

After recording expansion over seven straight weeks to hit a high of $507.6 billion in the week ended June 19, foreign exchange reserves fell by $2.1 billion in the week ended June 26 to $505.55 billion due to fund outflow by foreign portfolio investors (FPIs) and rise in Brent crude prices.

In the week ended June 19, while the FPIs pulled out a net of $342 million, the Brent crude oil prices rose by nearly 10 per cent from $38.54 per barrel to $42.33. Sources say a rise in crude prices result in higher payout for oil import leading to a dip in reserves. During the week, even the rupee weakened against the dollar by 21 paise to lose at 76.26 on June 19.

Data released by the Reserve Bank of India shows that in the week ended June 19, foreign currency assets, a major component of the overall reserves, declined by $1.7 billion to $467.03 billion. The value of gold reserves declined by $370 million to $32.8 billion.

Several factors played a role in the expansion in forex reserves. While rise in FPI inflow and foreign direct investments helped the cause, they have been supported by fall in import outgo on account of sharp decline in crude prices and COVID impact on trade.

Between September 20, 2019 and June 12, the reserves have grown by $79 billion. High levels of forex reserves not only provide cushion to the economy in terms of covering the import expenditure, but also provide stability to the currency against the dollar.

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