New Delhi, Jan 16 (IANS) India’s foreign exchange reserves increased by $392 million to $687 billion in the week ending January 9, the Reserve Bank of India (RBI) announced on Friday.
The Central Bank said the value of gold reserves, a key component of the foreign exchange reserves, also increased by $1.56 billion to $112.83 billion in the week ending January 9.
A key reason for the increase in gold reserves is the sharp rise in gold prices. The price of gold in international markets has increased by approximately 2.5 per cent in the last week, and by about 5.5 per cent in the last month.
The value of Foreign Currency Assets (FCA), the largest component of the foreign exchange reserves, decreased by $1.12 billion to $550.86 billion. FCA includes the dollar along with other major world currencies such as the yen, euro, and pound, whose values are expressed in dollars.
According to the RBI, the value of Special Drawing Rights (SDRs) decreased by $39 million to $18.73 billion in the week ending January 9. The value of the reserve position in the IMF decreased by $13 million to $4.758 billion.
Foreign exchange reserves are very important for any country and reflect its economic condition. They also play a significant role in stabilising the exchange rate.
For example, if the rupee comes under pressure against the dollar and its value falls, the Central Bank can use its foreign exchange reserves to prevent the rupee from depreciating further against the dollar and maintain exchange rate stability.
Rising foreign exchange reserves also indicate a large inflow of dollars into the country, which strengthens the economy. Furthermore, an increase in reserves makes it easier for the country to conduct international trade.
–IANS
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