Indian Foreign Exchange Reserves

The RBI data shows that Indian Foreign Exchange Reserves have been increased by USD 1.497 billion to reach USD 398.178 billion for the week to January 25. This increase has been attributed to a jump in core currency assets.

Why the Foreign Exchange Reserves frequently fluctuate?

The Foreign Exchange Reserves are expressed in terms of the US dollars are subject to variations due to the appreciation/depreciation of non-US currencies such as the euro, pound and yen held in the reserves.

Trends in Indian Foreign Exchange Reserves

India’s Foreign Exchange Reserves fluctuations are listed below:

  • In the week previous to January 25, the foreign exchange reserves had dropped by USD 671 million to USD 396.68 billion.
  • The foreign exchange reserves of India had touched a record high of USD 426.028 billion in the week to April 13, 2018. Since then it is mostly declining.
  • The decline is largely attributed to the selling of the dollar by the RBI to contain rupee volatility.
  • The central bank now holds 566.23 tonnes of the gold and purchase of 8.46 metric tonnes of gold was made in the fiscal year ending June 2018.
  • In its annual Report, RBI had stated that the purchase of gold was made to diversify the foreign currency assets.

Foreign Exchange Reserves

Foreign Exchange Reserves are the reserve assets held by a central bank in foreign currencies. They are used to back liabilities on their own issued currency as well as to influence monetary policy. These reserves act as a buffer during the challenging times to the economy.

The components of India’s FOREX Reserves which is expressed in terms of US dollars include foreign currency assets (FCAs), Gold Reserves, Special Drawing Rights (SDRs) and RBI’s Reserve position with International Monetary Fund (IMF). FCAs constitute the largest component of Indian Forex.

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