India’s foreign exchange reserves have declined by a massive USD 6.24 billion to reach USD 583.945 billion. In the previous week, the reserves had touched a record high of USD 590.185 billion.
Context
India’s foreign exchange reserves have declined by a massive USD 6.24 billion to reach USD 583.945 billion. In the previous week, the reserves had touched a record high of USD 590.185 billion.
Foreign Currency Assets (FCAs)
- Foreign exchange reserves are assets denominated in a foreign currency that is held by a central bank.
- Reserve Bank of IndiaAct and the Foreign Exchange Management Act, 1999 set the legal provisions for governing the foreign exchange reserves.
- Foreign exchange reserves of India act as a cushion against rupee volatility once global interest rates start rising
- The Foreign exchange reserves of India consists of below four categories
- Foreign Currency Assets
- Gold
- Special Drawing Rights(SDRs)
- Reserve Tranche Position
Reasons behind the decline
- The decline in the forex was mainly on account of a fall in foreign currency assets (FCAs), a major component of the overall reserves.
- 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.
