How did India’s forex reserves cross $600 billion mark? Know its impact here


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India’s forex reserves crossed the $600 billion mark for the first time, as per the latest data from the Reserve Bank of India (RBI) on Friday, June 11, 2021.

The country’s foreign exchange reserves rose by $6.842 billion taking it to $605 billion in the reporting week ended June 4, 2021. India now stands behind Russia by only $200 million in terms of foreign exchange reserves.

Shaktikanta Das, RBI Governor said, “The current level of forex reserves is enough to cover nearly 16 months of imports”. The central bank has earned enough resources with the increased reserves to tackle any challenges arising due to sudden policy or geopolitical shifts that could lead to depletion of funds from India.

How did India’s forex reserves cross $600 billion mark?

• The increase in the country’s foreign reserves in the reporting week ended June 4, 2021, is mainly being attributed to a rise in the value of foreign currency assets (FCA) that are held by the central bank.

• As per the data, the foreign currency assets (FCA) comprising a major component of the overall reserves held by the central bank increased by $7.362 billion to $560.890 billion.

• The foreign currency assets (FCA) reflect the depreciation or appreciation of non-US currencies such as the yen, euro, or pound held in the foreign exchange reserves.

• In the reporting week, the gold reserves held by RBI also fell by $502 million to $37.604 billion.

• Though after a volatile end to FY21, the country’s forex reserves reported a rise due to continued foreign investment flow into the capital markets.

• The RBI’s strategy to buy dollars during a sudden spurt of inflows has led to a pile-up of foreign exchange reserves. The RBI in FY20 was successful at adding over $100 billion to the reserves.

• In FY21, as per the CDSL, the country reported net inflows of $37 billion were reported through foreign fund buying while another $400 million net flows were added to these.

• In the reporting week, the country’s reserve position with the International Monetary Fund (IMF) also dipped by $16 million to $5billion, and the special drawing rights (SDRs) with the IMP also dropped by $1 million to $1.513 billion.

What will be the impact of rise in forex reserves?

• As Shaktikanta Das, RBI Governor said, “The current level of forex reserves is enough to cover nearly 16 months of imports”.

• The central bank has earned enough resources with the increased reserves to tackle any challenges arising due to sudden policy or geopolitical shifts that could lead to depletion of funds from India.

• Such an accumulation of surplus forex reserves will also aid the RBI in maintaining the exchange rate at a comfortable level.

• Market experts state that such a rise in forex reserves is indicative of RBI’s intervention in the market at a strong pace to ensure the rupee does not appreciate.



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