The country’s foreign exchange reserves, or forex, gained $2.198 billion to $631.953 billion in the week ended February 4, according to weekly data from the RBI.
In the previous week ending Jan. 28, the forex pool fell $4.531 billion to $629.755 billion. Reserves had reached a lifetime high of $642.453 billion in the week ended September 3 last year.
According to data from the Reserve Bank of India (RBI) released on Friday, during the reference week, the rise in foreign exchange reserves was due to a rise in the FCA.
A major component of overall reserves, Foreign Currency Assets (FCA) posted an increase of $2.251 billion to $568.329 billion in the week ended Feb. 4.
Expressed in dollars, the FCA includes the effect of the appreciation or depreciation of non-US units such as the euro, the pound and the yen held in foreign exchange reserves.
Meanwhile, gold reserves moderated by $210 million to $39.283 billion in the reporting week, according to RBI data.
Special Drawing Rights (SDRs) with the International Monetary Fund (IMF) rose by $98 million to $19.108 billion, according to the RBI.
India’s reserve position with the IMF increased by $59 million to $5.233 billion in the reporting week, the data showed.
Higher foreign exchange reserves are a big cushion in the event of an economic crisis and are enough to cover the country’s import bill for a year. It also helps the rupiah strengthen against the US dollar.
An increase in reserves will provide a level of confidence to markets that a country can honor its external obligations, demonstrate the backing of the national currency by external assets, help the government meet its foreign currency needs and meet its external debt obligations , and maintain a reserve for disasters or national emergencies.
A fall in foreign exchange reserves, however, can cause problems for the government and the RBI in managing the external and internal financial problems of the country.
The Reserve Bank acts as depository and manager of foreign exchange reserves and operates within the overall policy framework agreed with the government. It allocates dollars for specific purposes.
For example, under the Liberalized Remittances Scheme, individuals are allowed to send up to $250,000 per year.
The central bank uses its forex pool for the orderly movement of the rupee. It sells dollars when the rupee weakens and buys dollars when the rupee strengthens. WITH PTI