The Rupee has been under pressure like most global currencies as the US dollar keeps acquiring value with aggressive interest rate hikes by the Federal Reserve. As the domestic currency falls, foreign exchange reserves act as a cushion as a pile of assets held in the form of US dollars or overseas government bonds. This is why forex reserves rising in India at the fastest pace in over a year is much needed relief for the Rupee.
Highest in more than a year
The foreign exchange pile for India went up by a record $14.37 billion in a week, which was highest for the period that ended on November 11. It was buoyed by foreign currency worth $8 billion which was bought by the Indian government. In August last year, $16.7 billion had been added to the reserve, but that was bulked up by $12.6 billion that came from the IMF as a fund for restructuring after the pandemic.
What this means for you
The Reserve Bank of India maintains foreign reserve exchanges by purchasing dollars, and the biggest pile of dollars globally is kept by China. The reserve also influences the monetary policy of a country, for managing the value of its local currency against the US dollar. Corporates also brought in a lot of dollars in foreign investment for India, which helped strengthen forex reserves.
Apart from foreign currencies, which went up by $11.8 billion, foreign assets are also stored in gold, which went up by $2.6 billion for India. Of these, $4 billion flowed in thanks to the dollars which were purchased by the central government. These infusions in the forex reserve, have helped the Rupee make a muted 2.3 per cent gain against its American counterpart between October 21 and November 11. At the same time, the Thai Baht and South Korean Won made even bigger gains at 9.2 per cent 6.7 per cent.