The nation’s foreign exchange — or forex — reserves saw a decline of $3.007 billion for the week ended August 26 to reach $561.046 billion, data released by the Reserve Bank of India (RBI) showed on Friday. The reserves had fallen by a massive $6.687 billion during the previous week ended August 19 to $564.053 billion.
In the week ended August 26, the reserves had fallen mainly because of a decline in the foreign currency assets (FCA) — a major component of the overall reserves, and the gold reserves — according to the Weekly Statistical Supplement released by the central bank.
The FCA had decreased by $2.571 billion to $498.645 billion in the reporting week.
Expressed in dollar terms, the FCA include the effect of appreciation or depreciation of non-US currencies such as the euro, pound and Japanese yen held in the forex kitty. Gold reserves decreased by $271 million to $39.643 billion, the data showed.
The special drawing rights (SDRs) dropped by $155 million to $17.832 billion. The country’s reserve position with the IMF also dipped by $10 million to $4.926 billion in the reporting week, the RBI data showed.
Falling forex reserves may cause issues for the government and the RBI in managing the nation’s external and internal financial issues.
Higher reserves are a big cushion in the event of any crisis on the eco- nomic front and enough to cover the import bill of the country for a year. Higher reserves also help the rupee strengthen against the dollar.
A rise in reserves will provide a level of confidence to markets that a country can meet its external obligations, demonstrate the backing of domestic currency by external assets, assist the government in meeting its foreign exchange needs and external debt obligations, and maintain a reserve for national dis- asters or emergencies.