country’s foreign currency The reserves increased for the fifth consecutive week and reached a historic level of $ 642.631 billion in the week ending March 22. According to RBI data, foreign exchange reserves increased by $ 140 million in the week under review. This increase is due to increase in the value of gold reserves which form part of the foreign exchange reserves. There has been an increase of $347 million. However, foreign currency assets declined by $123 million during the week. Earlier, in the week ending March 15, foreign exchange reserves had stood at a record level of $ 642.492 billion.
This is the benefit of increasing foreign exchange reserves
The increase in foreign exchange reserves gives more scope to the RBI to stabilize the rupee when it becomes unstable. This is because RBI intervenes in the spot and futures currency markets by releasing more dollars to prevent the rupee from falling heavily. Conversely, a decline in foreign exchange reserves leaves the RBI with fewer options to intervene in the market to support the rupee.
Rise due to decline in trade deficit
The good news on foreign exchange reserves also comes as exports hit an 11-month high in February and the trade deficit declined. This indicates strengthening of the country’s external balance which bodes well for the rupee going forward.
Input: IANS
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