India’s forex reserves

India’s foreign exchange (forex) reserves declined for the seventh consecutive week.

What are forex reserves?

Forex or foreign exchange reserves are assets held by the central bank in foreign currencies as a reserve.

How much forex reserves does India currently have?

• According to the latest data from the Reserve Bank of India (RBI), India’s forex reserves stood at $600.42 billion as of April 22, 2022.
• All components in India’s forex reserves witnessed a fall in the week ending April 22, 2022.
• The forex reserves were at an all-time high of $642.453 billion on September 3, 2021.

What are the components of forex reserves?

The components of forex reserves are:

1. Foreign currency assets (FCA)
2. Gold holdings
3. SDRs (special drawing rights) of the International Monetary Fund (IMF).
4. Reserve tranche position (RTP) in the International Monetary Fund (IMF).

Foreign currency assets (FCA) are comprised of?

Foreign currency assets (FCA) are maintained as a multi-currency portfolio comprising major currencies, such as the US dollar, Euro, Pound sterling, Japanese yen, etc.

Foreign currency assets (FCA) are expressed in terms of which currency?

US dollar.

What is the use of forex reserves?

Forex reserves are usually used for backing the exchange rate and influencing monetary policy.

Why forex reserves are important?

• All international transactions are settled in US dollars and therefore a country should have enough dollars to support its imports.
• Adequate forex reserves limit any vulnerability because of a sudden disruption in foreign capital flows, which could happen during a crisis.
• Holding liquid forex gives the confidence that there is enough forex to support the country’s crucial imports in case of external shocks.

Why there is a dip in forex reserves of India?

• Reserve Bank of India (RBI) is selling dollars to prevent a slide in the value of the rupee amid the ongoing Russia-Ukraine conflict. The RBI intervention started when the rupee crossed the 76 level.
• The increase in global oil prices crossing $100 per barrel has affected India’s forex reserves. This is because India depends on imports for 85% of its oil needs.
• There is also capital outflow due to sustained selling by foreign portfolio investors (FPIs).

Thus, the Ukraine war has hurt the country’s currency and its import cover.

What is import cover?

Import Cover measures the number of months of imports that can be covered with foreign exchange reserves available with the central bank of the country.

What is the present import cover of India?

India’s $600 billion strong foreign exchange reserves are adequate to finance 12 months’ imports as of March 2022.

What are Special Drawing Rights (SDR)?

The SDR is an international reserve asset, created by the International Monetary Fund (IMF) in 1969 to supplement its member countries’ official reserves.

The value of SDR is based on which currencies?

The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling.

What is the Reserve tranche position (RTP) in the International Monetary Fund (IMF)?

A reserve tranche is a segment of an International Monetary Fund (IMF) member country’s quota that is accessible without fees or economic reform conditions.

Month: Current Affairs - May, 2022

Category: Economy & Banking Current Affairs