India’s Foreign Exchange Kitty Rises For 5th Week In A Row

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New Delhi: India's foreign exchange reserves rose for a fifth straight week to touch the $642.63 billion mark as of March 22, according to RBI data released on Friday. The foreign exchange reserves went up by $140 million in the reporting week. The increase is largely due to the value of the gold reserves, which also form part of the foreign exchange kitty, rising by $347 million.

The foreign currency portion of the total reserves, however, declined by $123 million during the week. Expressed in dollar terms, the foreign currency assets include the effect of appreciation or depreciation of non-US units like the euro, pound and yen held in the foreign exchange reserves. Similarly, SDRs were also down by $57 million. ()

In the preceding week that ended on March 15, the forex reserves had increased by a more robust $6.4 billion to scale a record high of $642.49 billion. Prior to this, the forex kitty had risen by $20 billion in the previous three weeks. ()

Rising foreign exchange reserves are positive for the economy as they reflect an ample supply of dollars that help to strengthen the rupee. An increase in the foreign exchange reserves gives the RBI more headroom to stabilise the rupee when it turns volatile.

This is because the RBI intervenes in the spot and forward currency markets by releasing more dollars to prevent the rupee from going into a free fall. Conversely, a declining forex kitty leaves the RBI less space to intervene in the market to prop up the rupee. India's forex reserves, including the central bank's forward holdings, can now cover more than 11 months of imports, which is close to a two-year high.