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Rise in Forex Reserves

According to latest data released by RBI, the country’s foreign exchange reserves rose to a ten-month high of $411.91 billion as on March 29, as against $406.67 billion a week earlier.

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  • The rise in forex reserves is due to record foreign portfolio investment (FPI) inflows and a $5 billion rupee-dollar swap window by the central bank.
  • A fall in crude oil prices in recent months and appreciation of the Indian rupee vis-à-vis the dollar also helped in steady rise forex reserves in recent weeks.
  • The appreciating rupee also increases returns on foreign investors pumping money in Indian markets, as it helps boost their returns in dollar terms.
  • A rupee-dollar swap by the RBI last month also added to the forex reserves.
  • In order to inject rupee liquidity, the RBI on March 26 conducted an auction to buy $5 billion from the market and simultaneously sell it back to the same counterparties effective March 2022.

Forex reserves of RBI

    • Foreign exchange reserves consist of any foreign currency held by a centralized monetary authority (RBI)
    • Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy.
    • The forex reserve is also kept as a cushion against any potential balanced of payment related crisis.
    • India’s foreign exchange reserves comprises of:
(i) Foreign currency assets (FCA)
(ii) Gold,
(iii) Special Drawing Rights (SDRs) and
(iv) Reserve tranche position (RTP) in the International Monetary Fund.

Source

Indian Express.
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