India’s forex reserves fall to over 7-month low at $402.7 billion

Why in the news ?
  • As per the recently released RBI data, India’s foreign exchange reserves fell to over 7-month low of $402.7 billion in the week ended August 3.
  • Total forex reserves dipped $1.49 billion from $404.19 billion in the week ended July 27, 2018.
More on news
  • India’s forex reserves have been falling steadily over the past four months after it hit an all-time high of $426.08 billion in the week ended April 13. 
  • Experts attributed the decline to RBI intervention to stem rupee’s slide against the dollar following capital outflows from the debt market.
  • While rupee has slipped below 69 against the dollar in recent times, now it closed at 68.83 to a dollar.
  • Since April 13, foreign exchange reserves have declined by 5.5 per cent or $23.4 billion.
  • Another factor than can be attributed to the decline in forex reserves is a rise in the trade deficit on account of rising crude oil prices and electronic imports.
  • However, a recent Crisil report said that India’s short-term external debt as a per cent of total external debt has remained broadly stable over the past few years (20.5 per cent in FY14 to 19.3 per cent in FY18) and the stability in short-term debt obligations has been accompanied by India’s improving ability to service it.
Foreign exchange reserves
  • Foreign exchange reserves consist of any foreign currency held by a centralized monetary authority (RBI)
  • Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy.
  • The forex reserve is also kept as a cushion against any potential balanced of payment related crisis.
  • India’s foreign exchange reserves comprises of:
    (i)   Foreign currency assets (FCA)
    (ii)  Gold,
    (iii) Special Drawing Rights (SDRs) and
   (iv)   Reserve tranche position (RTP) in the International Monetary Fund.

Posted by Jawwad Kazi on 11th Aug 2018