India’s Forex Reserves to Spurt Sharply This Week

When the Reserve Bank of India announces its foreign exchange reserves statistics on Friday, India’s foreign exchange reserves will climb significantly. On August 23, 2021, the International Monetary Fund (IMF) provided India a Special Drawing Rights (SDR) allocation of 12.57 billion, which is around US$ 17.86 billion.

The SDR is the IMF’s internal accounting unit for member nations, and it is a weighted average of a basket of currencies, including the US dollar, the Japanese yen, the British pound, the Euro, and the Chinese Renminbi. The new SDR allocation follows the G-20’s recent decision to expand the IMF’s loan capacity by US$ 650 billion to combat the economic consequences of the COVID-Crisis. India receives the funding in accordance with its 2.75% quota with the IMF.

As of August 23, 2021, India’s total SDR holdings were SDR 13.66 billion (equal to ~ US$ 19.41 billion at the current exchange rate). According to a Reserve Bank statement, this rise in SDR holdings will be reported in the Foreign Exchange Reserves (FER) figures for the week ending August 27, 2021. As of August 20, India’s reserves were US$ 616.9 billion.

The central bank’s cost of keeping reserves may be reduced as a result of the greater allocation of SDR. According to the IMF, an SDR allocation is a method of boosting Fund member nations’ foreign exchange reserves and helping them to minimise their reliance on more expensive domestic or external loans for reserve accumulation.