India’s Forex Reserves Rise by $1.4 Billion Due to Surge in RBI’s Gold Assets

Mumbai: India’s foreign exchange reserves rose by $1.444 billion to $589.465 billion in the week of May 7, the Reserve Bank of India’s weekly statical data showed on Friday.

The increase in foreign kitty in the reporting week was mainly on the back of a rise in the value of gold assets held by the central bank. The gold reserves in the reporting week rose by $1.016 billion to $36.480 billion, as per the central bank data.

After a volatile end to the fiscal year, the central bank’s foreign reserves have steadily grown over the first five weeks. The forex kitty is just short of the all time high of $590.18 billion in January of 2021.

Meanwhile, the central bank’s foreign currency assets (FCA), which constitutes a major component of the overall reserves too increased in the reporting period. FCA rose by $434 million to $546.493 billion, the data showed.

The FCA reflects appreciation or depreciation of currencies like the euro, pound and yen held in the foreign exchange reserves, expressed in dollar terms. Typically, the value of FCA for a said week is a function of currency depreciation and also the intervention in the currency market by RBI.

The special drawing rights (SDR) with the International Monetary Fund (IMF) – another component of the forex kitty – fell marginally by $4 million to $1.503 billion.

The reserve position with the IMF too reported a marginal decline of $1 million against the previous week to $4.989 billion, the data showed.

The rise in forex reserves is typically a factor of increase or decrease of portfolio investments from offshore investors and also a growth in the foreign direct investments (FDIs) during the period. Central banks purchase of gold reserves too affects the foreign exchange kitty.

A strong kitty allows the central bank to timely intervene in forward and spot currency markets to arrest any slide in rupee devaluations.

India’s central bank has been shoring up its foreign reserves since over a year and in the process has leapfrogged Russia and South Korea as the fourth-biggest holder of forex reserves only behind China, Japan and Switzerland.

Source: ET