India’s Forex Reserves Rise to $658.1 Billion

Why in the news?

India’s forex reserves increased by $1.5 billion to $658.1 billion after an eight-week decline, driven by RBI interventions and fluctuating foreign portfolio investments, enhancing economic stability.

India’s Forex Reserves Rise to $658.1 Billion

Forex Reserves Surge After Eight-Week Decline:

  • India’s foreign exchange reserves increased by $1.5 billion, reaching $658.1 billion.
  • The surge follows an eight-week decline in reserves, marking a positive turnaround.
  • The Reserve Bank of India (RBI) reported the latest figures amid fluctuating foreign portfolio investments (FPIs) and active currency market interventions.

Contributing Factors:

  • The rise in reserves is largely attributed to the RBI’s interventions in the currency markets to stabilize the rupee.
  • Foreign portfolio investments also played a role, although they have been volatile.
  • The increase in forex reserves highlights the country’s ability to weather external economic pressures, contributing to financial stability.

What are Foreign Exchange Reserves?

  • Assets held by a central bank in foreign currencies, including bonds, treasury bills, and government securities.
  • After the 1990-91 economic crisis, India was advised to maintain reserves for 12 months of import requirements.

Key Components of India’s Forex Reserves:

  • Foreign Currency Assets
  • Gold Reserves
  • Special Drawing Rights (SDRs)
  • Reserve Position with the IMF

Majority of reserves are held in US dollars.

About Foreign Currency Assets (FCA):

  • Foreign Currency Assets (FCA): Assets held in foreign currencies, mainly in US dollars, affected by exchange rate fluctuations of non-US currencies like the euro, pound, and yen.
  • Special Drawing Rights (SDRs): IMF-created reserve asset, based on a basket of currencies; can be exchanged for freely usable currencies; interest paid on SDR holdings.
  • Reserve Position in IMF: A portion of the IMF quota, accessible without conditions, providing emergency funds to member countries.

Sources Referred:

PIB, The Hindu, Indian Express, Hindustan Times