India’s forex reserves fall by $2.23 bn

India’s forex reserves fall by $2.23 billion: According to data from the Reserve Bank of India (RBI), India’s foreign exchange (forex) reserves decreased by $2.238 billion to 550.871 billion for the week ended September 9.

India’s forex reserves fall by $2.23 billion: Key Points

• According to the RBI’s Weekly Statistical Supplement, the decline in reserves during the reporting week was caused by a decline in foreign currency assets (FCAs) which is a significant portion of the total reserves.
• During the reporting week, the FCAs dropped by USD 2.519 billion, reaching USD 489.598 billion.
• However, the report revealed that the gold reserves increased in value by USD 340 million to USD 38.644 billion and the nation’s reserve position with the IMF improved by USD 8 million to USD 4.91 billion during the reporting week.
• The Special Drawing Rights (SDRs) decreased by 63 million dollars to 17.719 billion dollars.
• Numerous banks predict that as the account deficit grows in FY23, the forex reserves will continue to decline.

What do you mean by Foreign Exchange Reserve?

• Foreign exchange reserves are assets held in reserve by a central bank in foreign currencies, such as bonds, treasury bills, and other government securities.
• India’s foreign exchange reserves consist of foreign exchange assets, gold reserves, special drawing rights, and a reserve position with the International Monetary Fund(IMF).
• The value of non-US currencies like the euro, pound, and yen held in foreign exchange reserves is reflected in the foreign currency assets, which are expressed in dollar terms.

Why do we keep Foreign Exchange Reserve?

• It reduces external vulnerability by keeping enough foreign cash on hand to absorb shocks in emergencies or when borrowing is restricted.
• It encourages and upholds confidence in the monetary and exchange rate management policies.
• It enables the ability to act in order to support the national or union currency.

What are the benefits of growing Forex Reserves?

• It acts as a safety net in the case of an economic Balance of Payments (BoP) crisis.
• The government and the central bank becomes more confident in managing India’s financial difficulties on the domestic and international fronts because of the growing foreign exchange reserves.
• Markets and investors will have more faith in a country’s ability to meet its foreign obligations if it has reserves.
• With expanding forex reserves, the rupee gets stronger against the dollar resulting in Rupee Appreciation.