The hikes in oil prices tend to have adverse consequences for growth and prices in several of our economies but they also have significant impact on external sector, encompassing both current and capital accounts. On current account, the trade deficit will tend to widen.
Consistent with their objectives, the official foreign exchange reserves are generally deployed in low-risk liquid assets. Typically these reserves are invested in debt instruments representing sovereign/sovereign-guaranteed liability, in deposits with other central banks, Bank for International Settlements (BIS), supranationals and with highly rated foreign commercial banks.