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Thursday, June 17, 2021

Forex reserves set to breach all-time high on sustained FDI, FPI inflows

Driven by sustained foreign direct investment (FDI) and foreign portfolio investor (FPI) inflow, the foreign exchange — or forex — reserves have been on the rise for over a month now, starting with a gain of $4.344 billion recorded during the week ended April 9.

By: ENS Economic Bureau | New Delhi |
May 23, 2021 6:47:45 am
India’s reserve position with the IMF increased by $10 million to $4.999 billion in the reporting week, the data showed.

Inching towards the record high seen in January, the country’s foreign exchange reserves swelled by $563 million to $590.028 billion in the week ended May 14, according to data from the Reserve Bank of India (RBI). The reserves had touched a lifetime high of $590.185 billion in the week ended January 29, 2021.

Driven by sustained foreign direct investment (FDI) and foreign portfolio investor (FPI) inflow, the foreign exchange — or forex — reserves have been on the rise for over a month now, starting with a gain of $4.344 billion recorded during the week ended April 9.

In the previous week ended May 7, the reserves had risen by $1.444 billion to $589.465 billion.

During the reporting week ended May 14, the rise in the forex kitty was mainly on account of an increase in foreign currency assets (FCA), a major component of the overall reserves.

FCAs jumped by $377 billion to $546.87 billion in the reporting week, as per weekly released data by the RBI on Friday.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US currencies like the euro, British pound and Japanese yen held in the foreign exchange reserves. Meanwhile, gold reserves recorded a rise of $174 million to $36.654 billion.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) posted a gain of $2 million to $1.506 billion.

India’s reserve position with the IMF increased by $10 million to $4.999 billion in the reporting week, the 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.

The Reserve Bank 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.

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