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INDIA’S FOREX RESERVES REACH ALL-TIME HIGH



  Jun 18, 2024

INDIA’S FOREX RESERVES REACH ALL-TIME HIGH



India’s foreign exchange reserves surged by $4.307 billion, reaching a new record of $655.817 billion for the week ending June 7, 2024, as per the Reserve Bank of India (RBI). This marks a significant increase from the previous high of $648.87 billion recorded on May 10, 2024. The reserves have shown substantial growth in recent weeks.

CONCEPTUAL OVERVIEW AND BREAKDOWN

What are Forex Reserves?
Forex reserves are assets held by the central bank in foreign currencies. These reserves are used to back liabilities and influence monetary policy. They include foreign currency assets, gold reserves, Special Drawing Rights (SDRs), and the reserve position with the International Monetary Fund (IMF).

Why are Forex Reserves Important?
Forex reserves serve as a crucial buffer against economic shocks and disturbances in the external sector. They help in managing the exchange rate, ensuring adequate liquidity, and maintaining financial stability.

How Are Forex Reserves Measured?
Forex reserves are expressed in dollar terms and include the effect of appreciation or depreciation of non-US currencies like the euro, pound, and yen held in the reserves.



FAQs


1. What caused the increase in India’s forex reserves?
The increase in India’s forex reserves was mainly driven by a rise in foreign currency assets, which increased by $3.773 billion. Additionally, gold reserves, Special Drawing Rights (SDRs), and India’s reserve position with the IMF also contributed to the increase.

2. What are foreign currency assets?
Foreign currency assets are holdings of non-Indian currencies by the central bank. These assets can be affected by the appreciation or depreciation of these currencies.

3. How much did gold reserves increase?
Gold reserves increased by $481 million, reaching a total of $56.982 billion.

4. What are Special Drawing Rights (SDRs)?
SDRs are international reserve assets created by the IMF. They supplement the official reserves of member countries. India’s SDRs increased by $43 million to $18.161 billion.

5. What is India’s reserve position with the IMF?
India’s reserve position with the IMF represents its financial contributions and borrowing capacity with the IMF. This position increased by $10 million, reaching $4.336 billion.

6. Why is it important to maintain high forex reserves?
High forex reserves provide a cushion against external shocks, support the national currency, and ensure that the country can meet its international obligations.


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