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Why is a minimum reserve of $ 600 billion necessary for economic recovery amid expensive oil, interest rate hike?

There is a reserve of 12 months of imports.

For the first time in a year, foreign exchange reserves have slipped below $ 600 billion. At present, the country has a reserve equal to 12 months of imports. If the dollar reserve decreases, the confidence of global investors will be reduced and the economic recovery will be hurt.

The country’s foreign exchange reserves for the last eight consecutive weeks (Foreign Exchange Reserves) is showing a decline. Forex reserves have slipped below the psychological level of $600 billion for the first time in a year. On one hand the price of crude oil (Crude Oil Price) is rising again. The problem of inflation is getting serious and central banks around the world are increasing the interest rate. On the other hand, the dollar reserve in the country is decreasing. This situation is not good for economic recovery. India currently ranks fifth in the world in terms of foreign reserves. At the fourth place is Russia, which has a reserve of $ 607 billion. India still has so much reserve that one year’s import can be done easily.

Everything was going well till February, then Russia invaded Ukraine and a serious challenge arose in front of the global economy. Commodity prices skyrocketed. Crude oil reaches $140 per barrel. India imports 80 percent of its oil requirement. In such a situation, the import bill increased very much due to expensive oil. Due to the payment being in dollars, our dollar reserve started decreasing.

$35 billion in damage in Ukraine crisis

On February 24, Russia attacked Ukraine. Since then, the country’s foreign exchange reserves have fallen by $ 35 billion, or 5.5 percent. On the other hand, the US Federal Reserve raised the interest rate in the second consecutive meeting of the FOMC. In March and May together, the interest rate has been increased by 0.75 percent. Due to this, there is a rise in the dollar and the dollar index has reached the highest level of 20 years.

FPI withdrawn 1.46 lakh crore so far this year

Due to the increase in the interest rate, foreign investors are withdrawing from the Indian market. So far this year, FPIs have withdrawn Rs 1.46 lakh crore from the Indian market. Private investment is a major contributor to India’s economy. If FPI keeps going back like this, then there will be a huge loss to the growth.

So much reserve is necessary for investment

If the Reserve Bank does not keep the foreign reserve above $600 billion, it will have dire consequences. The $600 billion reserve is a sign of strength and confidence in the event of the Ukraine war. If it stays above this level then it is necessary to attract investors. Expenditure is necessary for the economy to survive and investment is very important for that. After the action of the Federal, it is becoming difficult to attract foreign investors anyway.

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CRR increased to strengthen rupee

The Reserve Bank has started work in this direction. Cash reserve ratio (CRR) has been increased to 4.5 per cent. It is believed that with the help of this, the Reserve Bank will increase the liquidity of 87 thousand crores, which will strengthen the rupee. It has reached an all-time high against the dollar.

Source: www.tv9hindi.com

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Shehnaz Ali
Shehnaz Ali
Shehnaz is a Corporate Communications Expert by profession and writer by Passion. She has experience of many years in the same. Her educational background in Mass communication has given her a broad base from which to approach many topics. She enjoys writing about Public relations, Corporate communications, travel, entrepreneurship, insurance, and finance among others.
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