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Higher foreign exchange reserves reduced the cost of loans from abroad, the matter came out in the article of RBI

Foreign Currency Reserve: Due to the high level of foreign exchange reserves in the country, the cost of borrowing from abroad as well as the cost of risk management for companies has also come down. This has been said in an article by the Reserve Bank of India (RBI). RBI has been emphasizing on foreign exchange reserves since 2019 and it reached a record $ 642.453 billion on September 3, 2021. This is more than double as compared to December 2018.

Foreign exchange reserves decreased in March
However, in March 2022, foreign exchange reserves decreased by $ 14.272 billion. The reason for this is the increase in interest rates in developed countries and capital withdrawal from the domestic market due to the Russo-Ukraine war.

RBI Officials Articles
The article titled ‘Foreign Exchange Reserve Buffer in Emerging Market Economies: Drivers, Objectives and Implications’ states, “The high level of foreign exchange reserves for India is attributed to the low cost of foreign borrowing as well as risk management.” is seen.” This article has been written by D Kesho Raut and Deepika Rawat, Department of Economic and Policy Research, RBI. The central bank said that the views expressed in the article are those of the authors and do not necessarily reflect their views.

According to the article, the reason for the increase in India’s currency reserves in recent years is the modest level of the current account deficit (CAD) relative to the net capital inflows. Accordingly, this is broadly in line with the trend observed in some emerging market economies (EMEs) in the post-Covid period. This is partly the result of much cheaper monetary policy in developed economies. Due to this, capital came from there to emerging economies in search of higher returns.

The country’s current account deficit decreased significantly in 2019-20 and remained in surplus in 2020-21. On the other hand, both these years there was a surplus situation in the capital account with foreign direct investment.

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