Forex reserves scale new peak, sniff at $656 billion

The reserves will likely jump more as the first leg of the JP Morgan bond index inclusion-induced inflow will begin later this month on June 28.
Forex reserves scale new peak, sniff at $656 billion

The nation’s forex reserves continued to rise for the third week in a row scaling a new peak of $655.82 billion, adding $4.31 billion between May 31 and June 7, show the latest data from the Reserve Bank.

In the previous reporting week that ended on May 31, the kitty had jumped by $4.837 billion to USD 651.51 billion. The reserves will likely jump more as the first leg of the JP Morgan bond index inclusion-induced inflow will begin later this month on June 28. The staggered move is set to get at least $25 billion of foreign capital into the Gsecs. This will get another leg up from next January when the bonds will be included in the Bloomberg emerging market government bond index.

Central banks maintain high reserves as a crucial guardrail against any disturbances in the external sector—and the higher the cushion the longer its external cover which also includes import cover. At the current level, the forex can cover imports for more than 13 months. Apart from offering macro stability and smooth payment settlements, the higher forex reserves also cement the country’s balance of payments position.

Forex reserves scale new peak, sniff at $656 billion
Forex kitty soars past USD 650-billion mark as JP Morgan bond inclusion nears

For the week ended June 7, the foreign currency assets, which are the largest component of the reserves, jumped by $3.773 billion to $576.337 billion, according to the weekly statistical supplement from the RBI issued Friday.

Expressed in dollar terms, the foreign currency assets include the effect of appreciation/depreciation of non-US units like the euro, the British pound and the Japanese yen held in the foreign exchange reserves.

Gold reserves also rose by $481 million to $56.982 billion during the week, the RBI said, while the special drawing rights gained by $43 million to $18.161 billion and the country’s reserve position with the IMF rose by $10 million to $4.336 billion in the reporting week.

Last week, while addressing the press after the monetary policy announcement, the governor Shaktikanta Das had ruled out any problem in managing the influx of foreign capital resulting from the JP Morgan’s bond index inclusion, stating that the central bank is well-prepared to handle them. He said, “The RBI has a number of instruments. We have managed it in the past. We will manage it this time also. So, no worries on that score."

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