The country's foreign exchange reserves increased by $1.739 billion to $582.037 billion in the week ended on March 12, as per the RBI data. The reserves had fallen by $4.255 billion to $580.299 billion in the previous week, which ended on March 5. In the week ending January 29, 2021, the reserves reached a record high of $590.185 billion.
Forex reserves, also known as foreign exchange reserves (FX reserves), are assets held by a country's central bank. It is typically held in reserve currencies such as the US dollar and, to a limited extent, the Euro, Japanese yen, and British pound sterling.
According to the country's central bank, India's foreign exchange holdings were $580.3 billion as of March 5. According to the International Monetary Fund, only China, Japan, and Switzerland have larger foreign exchange reserves.
The increase in reserves in the reporting week ended March 12 was due to an increase in foreign currency assets (FCA), a major component of overall reserves. The Reserve Bank of India's (RBI) weekly data showed that FCA increased by $1.409 billion to $541.022 billion.
The effect of appreciation or depreciation of non-US units kept in foreign exchange reserves, such as the euro, pound, and yen, is included in the foreign currency assets when expressed in dollar terms.
The gold reserves increased by $336 million to $34.551 billion in the report week, after decreasing the previous week. According to the numbers, the country's reserve position with the IMF fell by $2 million to $4.963 billion in the reporting week.
Stronger foreign currency reserves, according to a Goldman Sachs report, will allow developing market central banks to protect their currencies from sharp declines by supplying dollars to the market during times of volatility.