For the week-ended March 13 forex reserve  fell $5.35 billion from the all-time high of $487.23 billion in the week-ended March 6, 2020.

More about the news:

  • Forex reserves stood at $481.89 billion from the all-time high of $487.23 billion.
  • Despite the decline in reserves over the week-ended March 13, forex reserves are, anyway, up by $53 billion since September 20, 2019.
  • Reason for the decline: decline is primarily driven by sharp outflow of funds by FPIs over the past three weeks. 
  • The outflow has also led to a steep fall in the stock markets as the Sensex has lost 8,383 points, or 21.2 per cent.

Positive impact: 

  • Decline in Brent crude oil prices: As crude oil amounts for almost 20 percent of India’s import bill, crude prices coming down to levels of $28 per barrel over the last couple of weeks provides comfort on the current account front.
  • Reduce import bill: It provides an opportunity to the central government to increase the prices of petrol.

Forex Reserves

  • Foreign exchange reserves are the foreign currencies held by a country's central bank. They are also called foreign currency reserves or foreign reserves. 
  • India's foreign exchange reserves are mainly composed of US dollar in the forms of US government bonds and institutional bonds.
  • Reserve Bank of India Act 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.

Need of forex reserves:

  • First, countries use their foreign exchange reserves to keep the value of their currencies at a fixed rate.
  • To maintain liquidity in case of an economic crisis.
  • To meet external obligations.
  • Foreign exchange reserves are a nation’s backup funds in case of an emergency, such as a rapid devaluation of its currency.
  • Foreign-exchange reserves act as the first line of defense for India in case of economic slowdown.

Also  readOPEC Plus And The Crashing Of Oil Prices

India’s Forex Reserves Cross $450 Billion For The First Time


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