GG News Bureau
Mumbai, 6th Oct. India’s foreign exchange reserves have reached a new high, surpassing the significant milestone of $700 billion. According to data released by the Reserve Bank of India (RBI) on Friday, the foreign exchange reserves increased by $12.588 billion to $704.885 billion for the week ending September 27.
Last week, the reserves were at a high of $692.296 billion. This buffer of foreign exchange reserves plays a crucial role in shielding domestic economic activity from global shocks.
As per the latest data from the RBI, India’s foreign currency assets (FCA), which is the largest component of the foreign exchange reserves, stand at $616.154 billion. Meanwhile, the current gold reserves are valued at $65.796 billion.
The recent figures indicate that India’s foreign exchange reserves are now sufficient to cover over a year’s worth of estimated imports. In the calendar year 2023, India has added approximately $58 billion to its foreign exchange reserves. In contrast, a cumulative decline of $71 billion was observed in the reserves during 2022.
Understanding Foreign Exchange Reserves
Foreign exchange reserves (FX reserves) are assets held by a country’s central bank or monetary authority. These reserves are typically maintained in reserve currencies, primarily the US dollar, and to some extent, the euro, Japanese yen, and British pound sterling.
The decline in foreign exchange reserves last year can largely be attributed to rising costs of imported goods in 2022. Additionally, the relative decrease in reserves was linked to the Reserve Bank of India’s periodic interventions in the market to manage the depreciation of the rupee against the rising dollar.
RBI’s Role in the Forex Market
The RBI closely monitors the foreign exchange markets and often intervenes through liquidity management, including the sale of dollars, to prevent a sharp depreciation of the rupee. The central bank intervenes in the market to maintain orderly conditions and aims to contain excessive volatility in the exchange rate without a pre-set target level or band.
With these strategic measures, the RBI ensures that India’s economy remains resilient amid global economic uncertainties, thereby safeguarding the interests of the nation.
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