Forex Reserves Of India

FOREX RESERVES OF INDIA

Context :

• Date: Week ended March 7, 2025
• Key Update: India’s foreign exchange reserves increase by $15.267 billion to $653.966 billion.
• India’s foreign exchange (forex) reserves saw the sharpest rise in over two years, jumping by $15.267 billion, reaching a total of $653.966 billion during the week ending March 7, 2025, according to data released by the Reserve Bank of India (RBI).

Key Highlights:

• Reason for the Sharp Increase: The sharp rise in forex reserves is mainly due to the $10 billion forex swap conducted by the RBI on February 28, 2025.
• In this swap, the RBI bought dollars against the rupee to provide additional liquidity to the financial system.

COMPONENTS OF FOREX RESERVES

• Foreign Currency Assets (FCA)
  • Change: +$13.993 billion
  • Total Amount: $557.282 billion
  • Explanation:
    • FCA makes up the largest portion of India’s forex reserves and is expressed in terms of US dollars.
    • These assets include foreign currencies like the euro, pound, yen, etc.
    • The increase of $13.993 billion reflects both the accumulation of foreign currency and the impact of exchange rate fluctuations, such as the appreciation or depreciation of the currencies held in the reserves relative to the US dollar.
  • Gold Reserves
    • Change: -$1.053 billion
    • Total Amount: $74.325 billion
    • Explanation:
      • The value of India’s gold reserves fell by $1.053 billion.
      • This decline can be attributed to fluctuations in the price of gold in the global market, where gold is traded in US dollars.
      • The overall value of India’s gold reserves stands at $74.325 billion, reflecting the amount of gold held by the Reserve Bank of India (RBI).
• Special Drawing Rights (SDRs)
  • Change: +$0.212 billion
  • Total Amount: $18.21 billion
  • Explanation:
    • SDRs are international reserve assets created by the International Monetary Fund (IMF) to supplement member countries’ official reserves.
    • India’s SDRs increased by $212 million to a total of $18.21 billion.
    • The increase reflects India’s share of IMF’s allocation of SDRs to member countries, which can be used for transactions with other countries or the IMF.
• IMF Reserve Position
  • Change: -$0.069 billion
  • Total Amount: $4.148 billion
  • Explanation:
    • India’s reserve position with the IMF decreased by $69 million, bringing it to $4.148 billion.
    • This reserve position represents India’s quota and the balance available in the IMF’s financial resources that India can access as part of its membership.

TREND IN FOREX RESERVES

• The forex reserves had been on a declining trend recently due to revaluation and the RBI’s interventions in the forex market to stabilize the rupee and manage volatility.
• At the end of September 2024, India’s forex reserves had hit an all-time high of $704.885 billion before starting to decline.

Implications and Significance:

• The increase in foreign exchange reserves will provide India with a stronger buffer to withstand external economic shocks, such as currency fluctuations or global financial uncertainties.
• The $10 billion forex swap was a key strategy used by the RBI to inject liquidity into the system, helping manage the domestic economy and supporting the rupee.

CONCLUSION

India’s foreign exchange reserves saw a sharp increase in the week ending March 7, 2025, driven mainly by the RBI’s $10 billion forex swap. This rise strengthens India’s financial position and helps ensure stability in the face of global economic challenges. While there was a decrease in gold reserves, other components, especially foreign currency assets, saw significant growth.

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