Current Affair 1:

News:

India has become the fourth economy in the world to surpass 700 billion US dollars in foreign reserves, joining China, Japan, and Switzerland.

Latest data:

A rise in India's foreign exchange (forex) reserves offers multiple economic benefits, including the following:

1. Currency Stability:

A higher forex reserve helps the Reserve Bank of India (RBI) stabilize the Indian rupee by providing the ability to intervene in foreign exchange markets. When the rupee faces downward pressure, the RBI can sell foreign currencies to prevent excessive depreciation, maintaining currency stability.

1. Import Coverage:

A larger reserve provides a buffer for imports. India, as a significant importer of essential goods like crude oil, needs forex to pay for these imports. A healthy forex reserve ensures the country can meet its import requirements even during global disruptions.

1. Boosts Investor Confidence:

Large forex reserves signal financial stability to international investors and credit rating agencies, attracting foreign investments. This can lower borrowing costs for the government and corporations, improving overall economic growth.

1. Debt Servicing and Crisis Management:

A higher reserve helps the country meet its external debt obligations smoothly, reducing the risk of default. Additionally, it provides a cushion during economic crises or global financial shocks, protecting the economy from balance-of-payment problems.

1. Improving Sovereign Ratings:

Adequate forex reserves improve India’s creditworthiness. Strong reserves reduce the risk of a currency crisis, improving the country's sovereign credit ratings, which can lead to lower interest rates on international borrowing.

1. Strengthening Export Competitiveness:

If the RBI intervenes to prevent excessive appreciation of the rupee, this can help keep Indian exports competitive by maintaining favorable exchange rates, benefiting exporters.

 

<< Previous Next >>