Forex reserves in India reach a seven-month high.
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Here's a lowdown on India's foreign exchange (forex) situation as of late. On May 9, our reserves stood strong at $690.6 billion, marking a seven-month high, according to central bank data. That's a boost of $4.5 billion since the previous week!
Over the past year, these reserves have skyrocketed by around $56 billion. While they're still less than their all-time high of $704.9 billion from late September 2024, they're moving in the right direction!
Foreign currency assets, which can be affected by other currencies' appreciation or depreciation, saw changes during this period.
The week ending May 9 was a bit rocky for the rupee, dropping by 0.9% due to heightened tension between India and Pakistan. Thankfully, the two nations called a ceasefire on May 10.
Contrary to the latest reported data, there was a brief dip in India's forex reserves, losing around $2 billion, ending the eight-week consecutive record of growth on May 2. This decline can be linked to several factors:
- A minor drop in gold reserves by $2.55 million.
- An increase in Foreign Currency Assets (FCA) by $514 million, but it wasn't enough to counteract the setbacks in other sectors.
- A decrease in Special Drawing Rights (SDRs) with the International Monetary Fund by $30 million.
- A reduction in the reserve position with the IMF.
Although this dip was temporary, it was followed by a substantial increase in reserves in the subsequent week, primarily due to a surge in gold holdings.
At the end of the week on May 9, the rupee closed at 85.5050, down 0.1% for the week, due to persistent dollar demand from local businesses and foreign banks.
You should know that India's forex reserves include its Reserve Tranche position in the International Monetary Fund. The Reserve Bank of India (RBI) plays an active role in managing these reserves, intervening in the currency market when needed. Fluctuations in reserve levels can occur during periods of rupee volatility or intervention.
- The temporary dip in India's foreign exchange (forex) reserves on May 2 was partially due to a minor drop in gold reserves and a decrease in the Reserve Bank of India's (RBI) Reserve Tranche position with the International Monetary Fund.
- While foreign currency assets increased by $514 million during the same period, they weren't sufficient to counteract the setbacks in other sectors, including a reduction in the reserve position with the IMF.
- Amidst general-news of geopolitical tensions between India and Pakistan, the week ending May 9 saw a 0.9% drop in the rupee's position against other currencies, partly due to heightened tension between the two countries.
- Despite the temporary dip, the subsequent week saw a substantial increase in India's forex reserves, primarily due to a surge in gold holdings, which helped to boost the overall assets under the RBI's management in India's finance sector.
