27-Jul-2021: India’s forex reserves position comfortable for import cover of more than 18 months & provide cushion against unforeseen external shocks
India’s foreign exchange reserves position is comfortable in terms of import cover of more than 18 months and provides cushion against unforeseen external shocks. This was stated by Union Minister of State for Finance Shri Pankaj Chaudhary in a written reply to a question in Rajya Sabha today.
Weather the reserve funds are adequate to meet the international payment obligations, the Minister said that the ratio of forex reserves to total external debt stood at 101.2 per cent and short-term external debt to forex reserves stood at 17.5 per cent as at end-March 2021. The ratio of volatile capital flows (including cumulative portfolio inflows and outstanding short-term debt) to reserves was 67.0 per cent at end-December 2020. India is comfortable in most of the external sector vulnerability indicators.
Speaking on the international currencies in our forex reserve, the Minister said the foreign currency assets, constituting more than 90 per cent of India’s forex reserves, are maintained as a multi-currency portfolio comprising major currencies, such as, US dollar, Euro, Pound sterling, Japanese yen, etc.
19-Jul-2021: India emerges as 5th largest forex reserves holder in the world with $608.99 billion as on June 25, 2021
With India’s forex reserves at $608.99 billion as on June 25, 2021 stood, India has emerged as the fifth largest foreign exchange reserves holder in the world after China, Japan, Switzerland and Russia. This was stated by Minister of State for Finance Shri Pankaj Chaudhary in a written reply to a question in the Lok Sabha today.
The Minister stated that India’s foreign exchange reserves position is comfortable in terms of import cover of more than 18 months and provides cushion against unforeseen external shocks. Government and RBI are closely monitoring the emerging external position calibrating policies or regulations to support robust macroeconomic growth.
Giving more details, the Minister said that RBI takes regular steps for diversification of forex reserves by scaling up operations in forex swap and repo markets, acquisition of gold and exploring new markets/products, while adhering to safety and liquidity standards. Variation in India’s forex reserves is primarily the outcome of RBI’s intervention in the foreign exchange market to smoothen exchange rate volatility, valuation changes due to movement of US dollar against other international currencies in the reserve basket, movement in gold prices, interest earnings from deployment of foreign currency assets and inflow of aid receipts.
The Minister further stated that a current account deficit, accompanied by increasing foreign exchange reserves, reflects a surplus on the balance of payments i.e., the magnitude of the net capital inflows exceeds the volume of the current account deficit. In 2020-21, India’s balance of payments recorded surplus in both current account and capital account which contributed to the increase in foreign exchange reserves during the year.
Besides exports and imports of goods and services, the overall stability of the external sector depends on other components of balance of payments including remittances (transfers), income in the current account, the size of net capital flows and external debt. India is comfortable in most of these external sector vulnerability indicators, the Minister said.
10-Oct-2020: India's foreign exchange reserves have recorded a new rise
India's foreign exchange reserves have recorded a rise of 3.618 billion dollars to touch a new lifetime high of 545.638 billion dollars in the week ended 2nd October. The Foreign currency assets, a major part of the overall reserves, increased by 3.104 billion dollars to 503.046 billion dollars. The gold reserves rose by 486 million dollars in the reporting week to reach 36.486 billion dollars. The country’s special drawing rights with the International Monetary Fund rose marginally by 4 million dollars to 1.476 billion dollars, while reserve position with the IMF also went up by 23 million dollars to 4.631 billion dollars.
12-Jun-2020: Reserves surge $8.2 bn in a week, exceed $500 bn for the first time
India’s foreign exchange reserves crossed $500 billion for the first time as the Reserve Bank of India builds up a war chest even as the rupee has been the worst performer among emerging market currencies since the COVID-19 outbreak was declared a pandemic in March.
The latest data from the RBI showed that India’s forex reserves surged by $8.2 billion during the week ended June 5 — the biggest weekly jump since September 2007 — to $500.02 billion. The increase in reserves was mainly due to a rise in foreign currency assets, which increased by $8.4 billion in the week.
Currency dealers said the sharp increase was due to gains from both currency revaluation (as the dollar depreciated against major currencies) and dollar mop-up through intervention by the central bank. India now has reserves to meet an import cover of about 14 months.
So far in 2020, foreign exchange reserves have climbed by $40 billion even as the rupee fell 6% in the same period, indicating that the RBI has not been aggressive in intervening in the currency market to stem the Indian currency’s fall.
India was one of the highest recipients of foreign currency inflows this month, which was being used by the central bank to boost its war chest during uncertain times.
The RBI’s FX policy has reverted to the Jalan-Reddy policy of building high FX reserves to insure against contagion. Experience suggests that higher FX reserves paradoxically lead to higher FPI inflows by comforting investors. RBI should ‘conservatively’ buildup $550 bn of reserves.