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India’s foreign exchange reserves cross half trillion dollars for the first time

India’s central bank has been shoring up its foreign reserves for over a year and has surpassed South Korea and Russia as the third biggest holder of forex reserves only behind Japan and China.

Jun 15, 2020 12:56 IST
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India’s foreign exchange reserves has crossed the milestone $500 billion mark for the first time ever in the country’s history. The foreign exchange reserves had risen to $8.2 billion in the week of June 5.

As per the data released by the central bank on June 12, the healthy surge in the foreign exchange was largely on the back of capital raising rounds by Kotak Mahindra and Reliance as the foreign currency asset held by RBI rose $8.4 billion and stood at a record $463 billion in the reporting week.

India’s central bank has been shoring up its foreign reserves for over a year and has surpassed South Korea and Russia as the third biggest holder of forex reserves only behind Japan and China.

Key Highlights:

•     Foreign currency assets that are expressed in US Dollars include the effect of appreciation or depreciation of non-US currencies such as pound, euro, and yen held in the reserves.

•     The earlier decision of rating company S&P’s to not downgrade India’s sovereign rating and outlook has also been expected to improve the foreign fund flow from global investors.

•     RBI’s reserve management policy’s prime objective is the safety of reserves and liquidity.

•     As per the latest RBI data, other components of Indian foreign reserve such as its reserve held in gold declined by $329 million in the reporting week and stood at $32.352 billion.

•     Central Bank’s and SDR reserve positions at IMF stood at $4.2 billion and $1.4 billion respectively.

The rise of foreign exchange reserves:

Saugata Bhattacharya, Chief Economist at Axis Bank mentioned that the inflows coming in on account of Foreign Direct Investment and Debt raising exercises by non-banking companies and domestic financial institutions would have largely contributed to the rise in inflow. The chief economist added that the news is a significant psychological milestone in times like this.

K Harhar of First Rand Bank mentioned that something which differentiates our reserves from Japan and China is the sporadic FDI inflows and the contribution of inward remittances. However, in recent months, the capital flows to some of the largest corporates indicate that not just sunrise sectors but the mature industries are also finding interest among global investors.

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