Indian Forex Reserve dropped by $4.34 billion to $589.14 billion

Indian forex reserve dropped

Indian Forex Reserve dropped by $4.34 billion to $589.14 billion | Fall in a forex reserve by $4.339 billion in a two consecutive weeks and reached $589.138 billion till the 26th May 2023: Reserve bank announced in Weekly Statistical Supplement released by the RBI on Friday.

Indian Forex Reserve dropped by $4.34 billion to $589.14 billion

Since October 2021, the country’s forex reserves has reached all-time high of $645 billion. In previous two consecutive weeks the India’s forex reserve dropped by, this week $4.339 billion and previous week $6.052 billion. The figure of forex reserve currently stands as $589.138 billion.

Foreign exchange reserves are the foreign currencies held by a country’s central bank. They are used to pay for imports and to service foreign debt. In times of economic crisis, they can be used to stabilize the country’s currency and pay for critical imports.

India’s forex reserves have historically played a crucial role in the country’s economic stability, and their depletion could pose challenges for the economy. for more details read this article published in Economic times.

Why did Indian Forex reserves drop by $4.34 billion?

This drop is mainly caused by decline in the foreign currency assets held by the Reserve Bank of India (RBI). The decrease was mainly due to the dip in the value of gold reserves and the revaluation of foreign currency assets held in the RBI’s reserves. The fall in the India’s forex reserves could be attributed to a trade deficit or an increase in the outflow of foreign capital.

The reason behind the dip in the value of gold reserves held by the RBI is not clear. However, it could be due to the fall in gold prices in the international market or a decrease in the amount of gold held by the RBI.

And the revaluation of foreign currency assets held in the RBI’s reserves was mainly due to the appreciation of major currencies such as the Euro and Pound Sterling against the US Dollar. As India’s Forex reserves are denominated in the US Dollars, any increase in the value of other major currencies results in a decrease in the value of foreign currency assets expressed in the US Dollar terms.

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What measures can the government take to boost Indian forex reserves?

The government can take several measures to boost forex reserves in India, including encouraging exports, attracting foreign investment, restricting non-essential imports, and stability. Additionally, the central bank can intervene in the foreign exchange market to buy foreign currencies and increase reserves.

In the long term, increasing competitiveness and diversifying the economy can also help to boost forex reserves.

Exports are important in boosting forex reserves because when a country exports goods or services, it receives payment in foreign currency. This foreign currency can be added to the country’s forex reserves, increasing the overall amount of foreign currency held by the government or central bank. The higher the value of exports, the more foreign currency a country can earn, which can help to improve its balance of payments and stabilize its currency exchange rates.

Also restrictions on non-essential imports help increase forex reserves by reducing the outflow of foreign currency from the country. When the government restricts the import of non-essential goods which reduces the demand for foreign currencies. Which in turn decreases the amount of foreign currency that needs to be spent on purchase goods from other countries.

A drop in India’s forex reserves may lead to a depreciation of the Indian Rupee, as well as an increase in borrowing costs for the Indian government. It could also impact investor confidence in the Indian economy, potentially leading to a decrease in foreign investment. In extreme cases, a depletion of forex reserves could lead to a balance of payment crisis, making it difficult for India to meet its international obligations.

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