Latin Manharlal Group
Wednesday, 11 May 2016
Strengthening forex reserves to improve India’s economic outlook.
Amidst the fear of global economic slowdown and flight of funds from emerging countries, surge in India’s foreign exchange reserves has brought the much needed relief to the system, lifting the outlook for Asia’s third biggest economy.
Under the guidance of Reserve Bank of India (RBI) Governor, Raghuram Rajan, the foreign exchange reserves have surged from a three-year low in September 2013 as he stimulated inflows by offering discounted currency swaps to the banks.
Maintaining the uptrend of the past several weeks, India’s forex reserves soared by USD 1.52 billion to a record high of USD 363.12 billion in the week ended April 29, 2016, the Reserve Bank of India noted.
The country's forex reserves had gone up by USD 1.35 billion to USD 361.601 billion in the week before.
What’s driving the surge
The spike in foreign exchange reserves was primarily on account of rise in the value of foreign currency assets that constitute a major part of the overall reserves.
Foreign currency assets, which are expressed in dollar terms and comprises the effect of appreciation or depreciation of non US currencies such as euro, pound and yen held in reserves, grew from USD 337.537 billion to USD 339.02 billion in the week ended April 29, 2016.
Further, a surge in the Indian rupee amid a pick-up in dollar inflows into local equity and debt markets has given adequate opportunity to the RBI to purchase dollars in the currency market.
Forex reserve to help curb volatility
The central bank is increasing reserves to stand any volatility in outflows amid sluggish growth in China and forecasts that the Federal Reserve will consider raising US interest rates.
Earlier this month, Raghuram Rajan cut the benchmark interest rate and promised to end a prolonged funding squeeze in the financial system by infusing cash via bond repurchases. He said, the central bank would buy dollars and bonds to infuse funds into the banking system.A strong forex reserves kitty will help the Indian economy overcome any possible volatility in foreign capital flows amidst heightened global economic uncertainty on account of weak commodity prices and worries over a China slowdown.
Latin Manharlal Group
Posted by Latin Manharlal at 23:00