The curious case of India’s rising forex reserves and falling rupee4 min read 12 Dec 2021, 10:41 PM IST
Any unintended further expansion of RBI’s balance sheet without normalizing credit offtake will only raise economic risks
For the uninitiated, the Reserve Bank of India’s (RBI) balance sheet is a concoction of both domestic and international assets carefully modulated regularly. Importantly, foreign reserve assets contribute to over 70% of the central bank’s combined balance sheet and hence impact its operations more significantly. Therefore, while analysing RBI’s financial statement, one must understand that what is bad for the rupee might turn out to be good for RBI. This makes the rupee’s relationship with much of RBI’s asset side inversely proportional. A case in point is the fact that while RBI has accumulated an additional $61 billion since the start of the current financial year, the rupee has lost value.
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