India’s foreign exchange reserves surged by $7.7 billion in the week ended November 6 to $568.494 billion, the highest on record.
In the previous week, the forex kitty had expanded $183 million to $560.715 billion.
The surge in the forex kitty in the reporting week was mainly on the back of an increase in foreign currency assets, which constitute a major component of the overall reserves. The FCA rose by $6.403 billion to $524.742 billion.
The FCA reflects appreciation or depreciation of currencies like the euro, pound and yen held in the foreign exchange reserves, expressed in dollar terms. According to experts, the surge in the FCA was largely on the back of the RBI’s intervention in the currency market to arrest the slide of the rupee.
Gold reserves rose $1.328 billion to $37.587 billion, as per the central bank data.
The special drawing rights with the International Monetary Fund — another component of the forex kitty — rose by $7 million to $1.488 billion. The reserve position with the IMF climbed by $40 million to $4.676 billion.
The rise in forex reserves is typically a factor of an increase in portfolio investments from offshore investors and also growth in foreign direct investments during the period.
A fall in crude oil prices over the previous weeks has helped save import bills, thereby giving a boost to the forex reserves. The prime objective of the RBI's reserve management policy is liquidity and safety of reserves.
A strong kitty allows the central bank to timely intervene in forwards and spot currency markets to arrest any slide in the rupee’s valuation. India’s central bank has been shoring up its forex reserves for over a year and, in the process, has leapfrogged Russia and South Korea to become the third-biggest holder of forex reserves, only behind China and Japan.