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.
- 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.
- 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 read: OPEC Plus And The Crashing Of Oil Prices
Image Source: Business standard