The country’s foreign currency assets were $465.075 billion and gold reserves were $37.206 billion, according to the RBI.
Foreign exchange reserves: India’s foreign exchange reserves hit their lowest level in two years. The country’s foreign exchange reserves fell by $3.85 billion to $524.52 billion in the week ended Oct. 21, according to data released by the Reserve Bank of India. This is the lowest level since July 2020. Due to this, gold and foreign exchange reserves decreased to $528.37 billion after falling by $4.50 billion the previous week. Over the past few months there has been a decline in foreign exchange reserves.
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FCA and gold reserves also fall
Foreign-currency-denominated assets (FCAs), considered an important component of foreign exchange reserves, fell $3.593 billion to $465.075 billion in the week ended Oct. 21, according to data released by the RBI. At the same time, the country’s gold reserves decreased by $247 million to $37.206 billion. Special Drawing Rights (SDRs) increased by $7 million to $17.44 billion, according to the central bank.
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The main reason for the fall in foreign exchange reserves is that the RBI uses foreign exchange reserves to prevent the rupee from depreciating against the US dollar. In October 2021, the country’s gold and foreign exchange reserves were at their highest level – $645 billion. So far, the RBI has sold $115 billion over the past year to protect the value of the national currency from falling.
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Impact of declining foreign exchange reserves
Any country, when necessary, resorts to the help of foreign exchange reserves to stop a sharp fall in the currency of its country. However, it also has downsides. If foreign exchange reserves become too low, then an uncontrolled fall in the currency can occur. This is bad for import-dependent countries, as the depreciation of the currency increases the cost of imports.