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Rise in Forex Reserves
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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.