India's forex reserves dropped $2.163 billion and stood at $688.267 billion in the week ended October 18, data from the Reserve Bank of India showed on Friday, even as foreign institutional investors (FII) sold and geo-political tensions mounted. Central bank data also showed that gold reserves rose by $1,786 billion to $67,444 billion during the week. There has been a spurt in gold buying amid geo-political tensions.
In addition, gold now serves as a safe haven against US economic sanctions. Historically, gold is a safe haven asset and has served as a hedge against inflation. And yet, gold has risen to unprecedented levels even though inflation continues to be subdued.
The share of gold in the country's forex has also surged more than 210 per cent since 2018. Last week, the forex saw $10.746 billion drop to $690.43 billion (for the week ended October 11). The forex had hit an all-time high of $704.885 billion at the end of September. For the week ended October 18, the Special Drawing Rights were down by $68 million to $18.271 billion.
The country's reserve position with the International Monetary Fund (IMF) was lower by $16 million at $4.316 billion. Ahead, India's forex reserves are going to increase and the strong forex will give a shot in its arm to its economic growth trajectory by making its position stronger internationally, attracting foreign investments, and boosting domestic trade and industry.
The foreigners foreign currency assets vary with the forex market activities of the central bank and price volatility of the assets in the reserves. Experts cite that bullion will close the week positive as safe demand, ETF buying, uncertain US election outcome, and rising bets for aggressive rate cuts from global central banks have supported.
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