Foreign currency assets Current Affairs - 2019

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Indian Foreign Exchange Reserves increased by $2.063 billion

The data from the Reserve Bank of India (RBI) shows that the Foreign Exchange Reserves of India increased by $2.063 billion to $400.24 billion in the week to February 1. The foreign exchange reserves had increased by USD 1.497 billion to reach USD 398.178 billion in the previous week corresponding to January 25. The increase in the value of the Foreign Exchange Reserves is attributed to the increase in foreign currency assets.

India’s Forex Reserves

The components of India’s Forex reserves are:

  • The Foreign Currency Assets which forms a major component of the overall reserves increased by $1.280 billion to $373.430 billion. Foreign currency assets expressed in USD are subjected to the effects of appreciation or depreciation of non-US currencies such as the euro, pound and yen held in the reserves.
  • In the reporting week, the gold reserves also increased by $764.9 million to $22.686 billion.
  • India’s special drawing rights with the International Monetary Fund (IMF) rose by $6.2 million to $1.470 billion.
  • India’s reserve position with the IMF also increased by $11.2 million to $2.654 billion.

Foreign Exchange Reserves 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.

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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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