Forex reserves

Forex reserves

Subject: Economy

Context: The country’s forex reserves jumped substantially by $5.942 billion to touch a life-time high of $507.644 billion in the week to June 12, helped by a significant jump in foreign currency assets (FCA), the Reserve Bank of India (RBI) data showed.

Concept:

• The foreign exchange reserves had crossed the half-a-trillion mark for the first time, after it surged by a massive $8.22 billion and reached $501.703 billion
• The foreign currency assets, a major component of the overall reserves, rose by $5.106 billion to $468.737 billion. .
• The gold reserves in the reporting week rose by $821 million to $33.173 billion
• The country’s reserve position with the IMF also rose by $3 million to $4.280 billion during the reporting week, the data showed.

Reason

• The increase in foreign exchange reserves is due to higher capital inflows and also due to the narrowing current account deficit as trade activities have come to a standstill due to the disruptions caused by the COVID-19.

Advantages on rising forex,

• give a lot of comfort to the government and the RBI in managing India’s external and internal financial issues at a time when economic
• It’s a big cushion in the event of any crisis on the economic front and enough to cover the import bill of the country for a year.
• The rising reserves have also helped the rupee to strengthen against the dollar. Reserves provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations and maintain a reserve for national disasters or emergencies.
• A lot of strength as they now cover one year of import expenditure.