The nation’s foreign exchange, or forex, reserves gained a healthy $2.198 billion to reach $631.953 billion during the week ended February 4, according to weekly RBI data.
During the previous week ended January 28, the forex kitty had recorded a decline of $4.531 billion to reach $629.755 billion. The reserves had touched a lifetime high of $642.453 billion in the week ended September 3 last year.
According the data from the Reserve Bank of India (RBI) released on Friday, during the reporting week, the surge in the forex reserves was on account of a rise in the FCA.
A major component of the overall reserves, the foreign currency assets (FCA) posted an increase of $2.251 billion to reach $568.329 billion in the week ended February 4.
Expressed in dollar terms, the FCA include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves.
Meanwhile, gold reserves moderated by $210 million to $39.283 billion in the reporting week, the RBI data showed.
The special drawing rights (SDRs) with the International Monetary Fund (IMF) saw a rise of $98 million to $19.108 billion, as per the RBI.
India’s reserve position with the IMF rose by $59 million to $5.233 billion in the reporting week, as per the data.
Higher forex reserves are 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. It also helps the rupee strengthen against the US dollar.
A rise in reserves will 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 fall in forex reserves, however, may cause issues for the government and the RBI in managing the nation’s external and internal financial issues.
The Reserve Bank functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with the government. It allocates the dollars for specific purposes.
For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $250,000 every year.
The central bank uses its forex kitty for the orderly movement of the rupee. It sells the dollar when the rupee weakens and buys the dollar when the rupee strengthens. WITH PTI