Indian’s forex close to record high on FCA surge

India’s foreign exchange reserves surged towards the record high seen in January, rising by $563 million to $590.028 billion in the week ended May 14 on the back of swelling foreign currency assets (FCA) , according to data from the Reserve Bank of India (RBI). The reserves had touched a lifetime high of $590.185 billion in the week ended January 29, 2021.

Driven by sustained foreign direct investment (FDI) and foreign portfolio investor (FPI) inflow, the foreign exchange — or forex — reserves have been on the rise for over a month now, starting with a gain of $4.344 billion recorded during the week ended April 9.

The increase in the reporting week was mainly due to a surge in the value of FCA and gold reserves held by the Reserve Bank.

The RBI’s FCA, which constitutes a major component of the overall reserves, increased by $377 million in the reporting period to $546.870 billion, the data showed. Gold reserves rose by $174 million to $36.654 billion, as per the RBI data.

The RBI has been shoring up its foreign reserves for over a year and in the process has surpassed Russia and South Korea as the fourth-biggest holder of forex reserves, but behind China, Japan and Switzerland.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US currencies like the euro, British pound and Japanese yen held in the foreign exchange reserves. Meanwhile, gold reserves recorded a rise of $174 million to $36.654 billion.

The special drawing rights (SDRs) with the International Monetary Fund (IMF) posted a gain of $2 million to $1.506 billion.

India’s reserve position with the IMF increased by $10 million to $4.999 billion in the reporting week, the data showed.

The rising forex reserves could bring some comfort to the government as well as the Reserve Bank in managing the nation’s external and internal financial issues at a time when the economy is facing Covid stress once again and it could have an impact on the GDP growth rate for the ongoing fiscal as states are announcing lockdowns. It is a big cushion in the event of any crisis on the economic front and enough to cover India’s import bill for a year.

An increase in the forex kitty could also help strengthen the rupee against the dollar.

The RBI functions as the custodian and manager of forex reserves, and operates within the overall policy framework agreed upon with the Centre. It allocates the dollars for specific purposes.

— issacjohn@khaleejtimes.com