Current Forex Reserves of India
According to the latest report released, India’s foreign exchange reserves fell by $5.4 billion to $643.16 billion. This decline comes after the reserves reached an all-time high of $648.56 billion, following a seven-week gaining streak.
Breakdown of the Decline
The decrease in the forex reserves was primarily due to a decline in foreign currency assets (FCAs), which fell by $6.51 billion to $564.65 billion. FCAs, the largest component of the forex reserves, include the effect of appreciation or depreciation of non-US currencies like the euro, pound, and yen held in the reserves.
Gold reserves, on the other hand, expanded by $1.24 billion to $55.8 billion during the same week. Special Drawing Rights (SDRs) decreased by $93 million to $18.08 billion, while the reserve position in the International Monetary Fund (IMF) dipped by $35 million to $4.63 billion.
Recent Trends in India’s Forex Reserves
- In the calendar year 2023, the RBI added about $58 billion to its foreign exchange kitty.
- However, in 2022, India’s forex reserves slumped by $71 billion cumulatively.
- So far in 2024, the reserves have risen by approximately $23 billion on a cumulative basis.
- The country’s foreign exchange reserves last touched their all-time high in October 2021.
- The decline after that can be attributed to factors such as the rise in the cost of imported goods in 2022 and the RBI’s intervention in the market to defend the rupee against a surging US dollar.
RBI’s Role in Managing Forex Reserves
The RBI closely monitors the foreign exchange markets and intervenes from time to time to maintain orderly market conditions by containing excessive volatility in the exchange rate.
This intervention is done without reference to any pre-determined target level or band.
Typically, the RBI intervenes in the market through liquidity management, including the selling of dollars, to prevent a steep depreciation in the rupee.
The central bank’s actions help in maintaining stability in the foreign exchange market and managing the country’s forex reserves effectively.
About Forex Reserves
India’s foreign exchange reserves are the foreign assets held or controlled by the Reserve Bank of India (RBI). These reserves comprise:
- Foreign currency assets
- Gold reserves
- Special Drawing Rights (SDRs)
- Reserve position with the International Monetary Fund (IMF)
Forex reserves are assets held by a nation’s central bank or monetary authority, usually in reserve currencies like the US dollar, euro, Japanese yen, and pound sterling. These reserves play a crucial role in ensuring the stability of the domestic currency, managing the country’s external trade, and providing a buffer against economic shocks.
Adequate forex reserves help in maintaining investor confidence in the country’s economy and provide the central bank with the necessary ammunition to intervene in the market during times of volatility.
Month: Current Affairs - April, 2024
Category: Economy & Banking Current Affairs - 2024