IMF’s asset allocation a booster shot, foreign exchange reserves bounce by document $16.6 bn

Following the International Monetary Fund’s (IMF’s) allocation of particular drawing rights (SDR) price $17.86 billion, the nation’s overseas trade reserves jumped by document $16.66 billion within the week ended August 27, 2021 to hit an all-time excessive of $633.56 billion. Over the final two years, foreign exchange reserves have grown by $200 billion.
In the week ended August 27, the IMF allotted SDR of 12.57 billion (equal to round $17.86 billion on the newest trade fee) to India, taking it from $1.54 billion on August 20 to $19.41 billion. The rise in foreign exchange reserves through the week was purely on account of SDRs as overseas forex belongings fell by $1.4 billion through the week and gold was up by simply $192 million.
SDR is a world reserve asset, created by the IMF in 1969 to complement its member nations’ official reserves. To date, a complete of SDR 660.7 billion (equal to about US$943 billion) have been allotted and it contains the largest-ever allocation of about SDR 456 billion permitted on August 2, 2021 (efficient on August 23, 2021). The worth of the SDR is predicated on a basket of 5 currencies—the US greenback, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling. The newest allocation was made to handle the long-term international want for reserves, and assist nations address the impression of Covid. SDR allocations play a job in offering liquidity and supplementing member nations’ official reserves, as was the case amid the worldwide monetary disaster.

India’s overseas trade reserves have risen sharply during the last two years. While the foreign exchange reserves stood at $429.6 billion on September 6, 2019, it has risen by $204 billion during the last two years and now stands at $633.56 billion.
The rise in foreign exchange reserves not solely supplies cushion to the financial system by way of masking the import expenditure, it has additionally resulted into stability in rupee towards the greenback and rupee has strengthened towards the greenback considerably during the last two weeks, following the bounce in reserves. While rupee was buying and selling at 74.35 on August 20, it closed at 73.02 on Friday and has appreciated 1.8 per cent over two weeks. While robust inflows by overseas portfolio buyers and FDI inflows during the last two years have led to this bounce in foreign exchange reserves over the 2 12 months interval, it was additionally supported by low crude oil costs.

While it went previous the $500 billion mark within the week ended June 5, 2020, it crossed the $600 billion mark a 12 months later within the week ended June 4, 2021.