The country’s foreign exchange reserves have reached its peak. According to the data released by the Reserve Bank of India, the foreign exchange ( Forex) reserves have increased by $3.883 billion and reached $541.431 billion, which is the highest level ever. Earlier, in the week ended August 21, the foreign exchange reserves had increased by $ 2.296 billion to $ 537.548 billion.
Why Forex is increasing?
The interesting thing is that when there is a huge decline of -23.9% in the country’s GDP growth, then foreign portfolio investors (FPIs) invested heavily in India’s capital market (stock and debt market). According to the National Securities Depository Limited (NSDL), foreign investors bought $ 6.662 billion in the country’s stock and debt markets in August 2020. This is the largest FPI investment in India in the last 41 months.
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This week, this increase in foreign exchange reserves has been particularly due to the surge in foreign currency assets (FCA), which form a major part of the currency reserves.
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According to RBI data, FCA has increased by $ 3.92 billion to $ 498.09 billion during this period. Foreign currency assets in dollar terms include the effect of declining or increasing non-US units such as the euro, pound, and yen.
According to RBI data for the week ending August 28, gold reserves have fallen by $ 6.4 million, now it has come down to $ 37.2 billion.
What does this mean?
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The rising forex reserves give comfort to the RBI and the government in managing external and internal financial matters of India, especially when there is a negative economic growth is registered. This reserve serves as a cushion in the event of a crisis on the economic front. It is enough to cover the import bill of India for a year. The rising reserves have also helped the rupee to strengthen against the dollar.