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Forex reserves continue to fall amid rupee slide, down by $5.2 billion

The nation’s forex reserves saw another massive fall during the week September 16, as they fell by $5.22 billion to $545.65 billion, data from the Reserve Bank of India (RBI) showed on Friday.

While some part of the decrease could be due to valuation changes, currency experts said much of it would be due to the central bank intervening in the currency market to prevent the rupee from depreciating more sharply against the US dollar.

The RBI has been dipping into the reserves to deploy dollars in the currency market, amidst volatility caused by a strengthening dollar. Experts estimate the central bank has sold around $35 billion in the currency markets since April. On Thursday, the rupee closed below the 80 mark against the dollar.

The fall in the reserves as of September 16 was due to a dip in the foreign currency assets (FCA), a major component of the overall reserves, according to the Weekly Statistical Supplement released by the RBI on Friday.

The FCA fell by $4.69 billion to $ 484.90 billion, the banking regulator said.

Expressed in dollar terms, the FCA includes the effect of appreciation or depreciation of non-US currencies such as the euro, pound and yen held in the forex reserves.

The value of the gold reserves decreased by $458 million to $38.186 billion, the data showed. The special drawing rights (SDRs) were lower by $32 million to $17.686 billion, the RBI said.

Explained

A cause of concern

Falling forex reserves may cause issues for the government and the Reserve Bank in managing the nation’s external and internal financial issues.

The country’s reserve position with the International Monetary Fund (IMF) was down by $31 million to $4.88 billion in the reporting week, according to the central bank.

The Reserve Bank functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with the government. It allocates the dollars for specific purposes. For example, under the Liberalised Remittances Scheme, individuals are allowed to remit up to $250,000 every year.  FE




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