Rising streak halts: Fall in currency assets pulls forex reserves down

Rising streak halts: Fall in currency assets pulls forex reserves down
Rising streak halts: Fall in currency assets pulls forex reserves down

The forex reserves, after a steady run of gains over the past few weeks, posted a decline of $1.581 billion to slide to $611.149 billion for the week ended July 23, data from the RBI showed. In the previous week ended July 16, the foreign exchange — or forex — reserves had reached a record high of $612.730 billion, having risen by $835 million.

During the reporting week, the fall in the reserves was primarily on account of a decline in foreign currency assets (FCAs), a major component of the overall reserves, according to weekly data by the Reserve Bank of India (RBI) released on Friday.

FCAs declined by $1.12 billion to $567.628 billion.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.

Gold reserves were down by $449 million to $36.884 billion in the reporting week.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) dipped by $3 million at $1.546 billion.

The country’s reserve position with the IMF also declined by $9 million to $5.091 billion in the reporting week, as per the data.

A rise in forex reserves could augur well for the government as well as the Reserve Bank in managing the nation’s external and internal financial issues at a time when the economy is facing Covid stress once again and it could have an impact on the GDP growth rate for the ongoing fiscal as states are announcing lockdowns.

It is a big cushion in the event of any crisis on the economic front 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 bring confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations, and maintain a reserve for national disasters or emergencies.

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