forex reserves: India’s forex kitty crosses $600 billion for the first time

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MUMBAI: India’s foreign exchange reserves have crossed the $600 billion mark for the first time. The reserves kitty rose by $6.842 billion to $605.008 billion in the week of June 4, latest data from the Reserve Bank of India showed on Friday.

The increase in foreign kitty in the reporting week was mainly on the back of a rise in the value of foreign currency assets (FCA) held by the central bank even as the value of gold reserves held by RBI fell.

The central bank’s foreign currency assets (FCA), which constitutes a major component of the overall reserves, rose by $7.362 billion to $560.890 billion, the data showed.

The FCA reflects appreciation or depreciation of currencies like the euro, pound and yen held in the foreign exchange reserves, expressed in dollar terms. Typically, the value of FCA for a said week is a function of currency depreciation and the intervention in the currency market by RBI.

The gold reserves in the reporting week, meanwhile, fell by $502 million to $37.604 billion, as per the central bank data. After a volatile end to FY21, the central bank’s foreign reserves have steadily grown over the first quarter of FY22 aided by increased foreign investments.

The special drawing rights (SDR) – another component of the forex reserve – fell marginally by $1 million to $1.513 billion. The reserve position with the IMF too reported a decline of $16 million against the previous week to $5 billion, the data showed.

The rise in forex reserves is typically a factor of increase or decrease of portfolio investments from offshore investors and also a growth in the foreign direct investments (FDIs) during the period. Central banks purchase of gold reserves too affects the foreign exchange kitty.

A strong kitty allows the central bank to timely intervene in forward and spot currency markets to arrest any slide in rupee devaluations.

India’s central bank has been shoring up its foreign reserves for over a year and in the process has leapfrogged Russia and South Korea as the fourth-biggest holder of forex reserves only behind China, Japan and Switzerland.

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