Foreign exchange reserves decreased for the fourth consecutive week, know why the fall will not affect the domestic economy
Forex Reserve – In the week ending April 1st, the reserve was reduced by $ 11 billion, while in the week ending March 25, the reserve decreased by $ 2.03 billion, on March 18 to $2.59 billion and on March 11 to $ 9.64 billion. This decline in reserves has been seen due to the ongoing uncertainty around the world.
India’s foreign exchange reserves ,Forex Reserve) has seen a decline for the fourth consecutive week. In this 4 weeks, India’s foreign exchange reserves decreased by more than $ 25 billion. Russia Ukraine crisis on foreign exchange reserves of countries dependent on imports around the world (Russia Ukraine Crisis) effect is visible. In fact, the bills of countries are increasing rapidly due to the rapid increase in commodity prices and this has a direct effect on the treasury of the countries dependent on imports. The foreign exchange reserves in India’s neighboring countries Pakistan and Sri Lanka have reached very low and due to this the economies of these countries are continuously sinking. However, the situation in India is much better. Let us tell you today that what is the effect of a fall in foreign exchange reserves on the economy of a country. And why India is in a strong position.
Why there will be no special effect on India
Even after 4 weeks of decline, India’s foreign exchange reserves are above $ 600 billion. The special thing is that with the rise in crude oil prices, India’s import bill reached a record level of $ 600 billion in the last financial year. That is, India’s foreign exchange reserves are equal to one year’s import bill even in the midst of conditions of depletion of reserves and boom in crude oil. The special thing is that in the meantime, India’s exports have also crossed the level of $ 400 billion. That is, if we look at it according to simple mathematics, then the current figure of the reserve can meet the import-export gap for the next 3 years. That is, overall India’s position in international trade is very strong due to its foreign exchange reserves. And this is the reason why the Reserve Bank has full opportunities to intervene in the currency. It is expected that in the coming times, with the increase in exports and softening of crude oil, the import bill will decrease once again, the country’s foreign exchange reserves will start increasing.
What is the advantage of forex reserves
Businesses around the world are done in many different currencies whose exchange rates are constantly changing. Exchange rates are determined on the basis of how much is supplied in the market against the demand for a particular currency. The central bank of the country can protect its currency from breaking more than a limit in an emergency through intervention with the help of high foreign reserves. In the week ending March 11 last month, the Reserve Bank had stopped the rupee from breaking more than a limit by increasing the supply of such dollars. Along with this, the ability to make timely payments for an export based country allows it to continue doing business with ease. At the same time, the confidence in the global trade about that economy also increases. Due to high foreign exchange reserves, economies can easily bear the shock of any sharp volatility in the event of a crisis like Russia Ukraine.
What if forex reserves deplete
We are seeing examples of this in Pakistan and Sri Lanka. The total foreign exchange reserves of these two countries are almost as much as the decline in India’s foreign exchange reserves has been seen during a month. With the depletion of foreign exchange reserves, countries lose the opportunity to intervene to save their currency. For this reason, the currency of both the countries is continuously falling against the dollar. Due to which imports and debt payments are becoming more expensive. Along with this, when such countries are unable to pay the necessary import bills, they take loans from other countries at high rates, due to which a large part of the country’s income starts spending on interest and debt repayments. Last month, Pakistan’s foreign exchange reserves had seen a decline of about $ 3 billion during a week. Which was registered due to the payment related to the debt by him to China. Due to rising debt payments and weak currency, most of the country’s income starts going out of the country and the situation becomes very challenging for the domestic economy.
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