India’s foreign exchange reserves swelled by $563 million to $590.028 billion in the week ended May 14, says data from the Reserve Bank of India (RBI). The reserves reached an all-time high – a lifetime high of $590.185 billion in the week ended January 29, 2021.
In the previous week ended May 7, the reserves had risen by $1.444 billion to $589.465 billion. The rise in forex was mainly on account of an increase in foreign currency assets (FCA), a major component of the overall reserves. The weekly data released by RBI, on Friday, showed that FCAs jumped by $377 billion to $546.87 billion.
Analysts say the rising forex reserves could bring some comfort to government as well as the RBI in managing the country’s external and internal financial issues at a time when the economy is facing COVID stress once again, and it could have an impact on the GDP growth rate for the ongoing fiscal as states are announcing lockdowns. Moreover, the surge in foreign exchange reserves has been described as a “big cushion” in the event of any crisis on the economic front and enough to cover India’s import bill for a year.
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A strong reserves position gives foreign investors and credit rating companies added comfort that the government can meet its debt obligations despite a deteriorating fiscal outlook and the economy heading for its first full-year contraction in more than four decades. Kaushik Das, chief India economist at Deutsche Bank, told ET last month that India’s various reserves adequacy metrics have improved significantly. He highlighted that healthy FX reserves position should give enough comfort to RBI for dealing with any potential external shock-driven capital-stop or outflows in the period ahead.
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