Foreign exchange reserves or Forex reserves (FX reserves), are basically assets held by any country's central bank or monetary authority.
Forex reserves are used to support liabilities as well as influence the monetary policy of any nation. RBI’s active intervention helped Indian rupee stabilize as foreign reserves reach one-month high!
In this article, we will discuss about the recent surge and driving factors behind this.
According to Reserve Bank of India (RBI): “India’s forex reserves jumped $2.561 billion to $644.151 billion for the week ended May 10.” In the previous reporting week, “the kitty had increased $3.668 billion to $641.59 billion” after three consecutive weeks of decline.
“Gold reserves increased $1.072 billion to $55.952 billion during the week; special drawing rights were up $5 million to $18.056 billion,” RBI reported further.
RBI data also noted: “India’s reserve position with the IMF was down USD 4 million to USD 4.495 billion in the reporting week.”
Generally, the foreign currency assets include the effect of “appreciation or depreciation of non-US units” such as the euro, pound or yen held in the forex reserves.
According to Anil Kumar Bhansali, head (treasury) and executive director of Finrex Treasury Advisors LLP: “The Indian rupee was boxed in a range of 83.44 to 83.52 during the entire week except for today when the RBI sold dollars at 83.50, and later due to long cutting, inflows to the tune of $ 500 billion for a stake sale in an NBFC and front running for the coming MSCI rebalancing to the tune of $ 2 billion took rupee up to almost 83.30 while it closed at 83.3350.”
He further told: “This was an opportune time for importers to buy dollars as it has remained on 83.50 for the last 2 weeks and all near term exposures were to be hedged by them at 83.35, he added.”
Regarding growth of Rupee Bhansali added: “The rupee is expected to be in a range of 83 to 83.50 next week which is holiday shortened week with holidays on 20 th and 23rd of April due to elections and Budhh Purnima. InFlows should dominate in the 3 trading sessions next week which does not have any important data coming up.”
“India's foreign exchange reserves increased by USD 4.471 billion to USD 620.441 billion in the week ending December 22, 2023, hitting a 21-month high,” according to RBI. It showed during the 2023 calendar year, the RBI added approximately USD 58 billion in its forex kitty.
Meanwhile, India's forex kitty slumped USD 71 billion in 2022.
Well, there are multiple reasons behind this surge! Gold reserve is one important reason among this. It added value and security during tough times. Apart from that, effective political and economic relationships with foreign countries are helping India to grow their foreign exchange reserves. Moreover, India has created a positive impact globally through stabilizing the currency post pandemic. The forex reserves of India crossed the $500 billion mark for the first time during Covid-19 pandemic in June, 2020.
The RBI monitors the foreign exchange markets timely to maintain orderly market conditions. It further decides liquidity management through the selling of dollars to prevent steep depreciation in the Indian rupee.
