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Forex reserves see their fourth week of gains, close to their all-time high

By on May 8, 2021 0

Foreign exchange reserves grew by $ 3.913 billion to $ 588.02 billion in the week ended April 30, according to data released by the RBI. During the previous week ended April 23, reserves had increased by $ 1.701 billion to $ 584.107 billion.

With the latest gain, the forex kitty posted its fourth straight week of gains – starting with an increase of $ 4.344 billion to reach $ 581.213 billion in the week ended April 9.

The latest boost also put reserves a touching distance from the all-time high of $ 590.185 billion, recorded in the week ended Jan. 29.

During the week ended April 16, reserves had increased by $ 1.193 billion to $ 582.406 billion.

According to data released by the Reserve Bank of India (RBI) on Friday, during the reporting week ended April 30, the increase in reserves was due to an increase in foreign currency holdings (FCA), a major component of aggregate reserves. .

The FCAs rose $ 4.413 billion to $ 546.059 billion, according to weekly data from the RBI.

Expressed in dollars, FCAs include the effect of the appreciation or depreciation of non-US currencies such as the euro, the pound and the yen held in foreign exchange reserves.

Gold reserves, meanwhile, declined $ 505 million to $ 35.464 billion in the reference week, according to central bank data.

Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) increased by $ 3 million to $ 1.508 billion for the week ended April 30.

The country’s reserve position with the IMF increased from $ 2 million to $ 4.99 billion in the week under review, according to RBI data.

The increase in foreign exchange reserves could provide some comfort to the government as well as the Reserve Bank in handling the country’s external and internal financial problems at a time when the economy is once again facing the stress of Covid and could. impact the GDP growth rate for the current budget as states announce lockdowns.

It is a big cushion in times of economic crisis 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

Higher reserves could lead markets to believe that a country can meet its external obligations, demonstrate support for the national currency by external assets, help the government meet its foreign exchange needs and debt obligations external, and maintain a reserve for national disasters or emergencies.

The RBI functions as the custodian and manager of foreign exchange reserves and operates within the framework of the overall policy agreed with the Center. It allocates dollars for specific purposes. For example, under the liberalized remittance program, individuals are allowed to remit up to $ 250,000 per year.

The central bank uses its forex kitty for the orderly movement of the rupee. He sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens.