Strong FPI inflows, rising foreign currency assets propel forex reserves to record high

The country’s foreign exchange reserves rose $ 3.43 billion to an all-time high of $ 493.48 billion in the week ended May 29 due to strong inflow of funds by foreign portfolio investors. In May alone, there was a sharp increase of $ 12.4 billion in foreign exchange reserves.

Data released by the Reserve Bank of India shows that in the week ended May 29, foreign currency assets, a major component of total reserves, increased from $ 3.50 billion to $ 455.21 billion.

During the week ended 29 May, FPI made a net investment of Rs 5,480 crore in Indian equities. Foreign investors want to buy stakes in Indian companies, as well as FDI inflows, which have led to an increase in foreign exchange reserves due to the epidemic.

Higher level of reserves provide stability to Rs.

Foreign currency reserves declined by more than $ 12 billion to $ 493 billion in May and FDI and FPI money flowed into the Indian economy amid the epidemic. Higher levels of reserves not only equal India’s one-year import bill, but also provide stability in the rupee against the dollar.

The rupee has also strengthened against the dollar due to the increasing income of funds and increasing foreign exchange reserves. While on Friday it was close to 75.56, it rose 34 paise in the week ended May 29 against the US dollar.

Experts say that in times of declining economic activity and growth, increasing foreign exchange reserves add great strength as they now cover a year of import expenditure.

In his monetary policy statement on 22 May, RBI Governor Shaktikanta Das said, “India’s foreign exchange reserves so far have increased by US $ 9.2 billion (as of 15 May) to US $ 487.0 billion in 2020-21 – equivalent to 12 months of imports. . ”

Expressed in dollar terms, foreign currency assets include the effect of appreciation or depreciation of non-US units such as the euro, pound and yen.

The central bank said the total value of gold reserves kept declining and was down by $ 32.682 billion compared to the previous week, which was $ 97 million less.

While the epidemic has prompted investors to seek refuge for safe investment sites and equipment, leading to an outflow of funds in March and April, a relative calm on that front in May. Brent crude oil prices have consistently benefited India and its foreign exchange reserves.

Earlier, India’s foreign exchange reserves ran smoothly for about six months as they increased week-on-week between September 20, 2019 and March 6, 2020.

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