Kochi: The US dollar will remain a major component of India’s foreign exchange reserves as most of the country’s overseas trade is denominated in that currency, a deputy governor of the Reserve Bank of India (RBI) said on Friday.
“Euro is not a significant component in total reserves. Our major reserves will always be in dollars as 90% of trade happens in dollars,” KC Chakrabarty told reporters in Kochi.
“How we are going to manage the currency will not be a matter of public debate,” he said.
Data released by the central bank on 14 May showed India’s foreign exchange reserves were $276.24 billion, which included foreign currency assets worth $251.47 billion.
The central bank does not provide a break-up of various currencies it holds as part of its forex assets.
Chakrabarty said the dollar’s rise against major currencies would impact the rupee too and the central bank cannot stop the local currency’s slide.
“Dollar is strengthening against all currencies, so it will be strengthening against the rupee also. You cannot stop it,” he said.
The rupee hit a six-and-half-month low of 47.33 per dollar on Friday, pressured by rising foreign fund withdrawals and falling stock markets. The BSE benchmark Sensex fell as much as 2% in early trade.
So far this month, foreign investors have pulled out $1.3 billion from domestic shares, bringing down net inflows in 2010 to $5.3 billion. Capital flows into and out of the share market are a crucial factor determining the rupee’s fortunes.
“If in normal times it happens, then it is a concern,” Chakrabarty said, referring to the volatile movements. “But because of a crisis it is happening, it will adjust to itself. There is no problem.”
“But if it remains continuously (volatile) it is a concern.”