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Home / Politics / Policy /  Forex reserves remain steady at $350 billion

Mumbai: India’s foreign exchange reserves are enough to cover nearly 10 months of imports, according to the latest report on the management of forex reserves released by the Reserve Bank of India (RBI) on Monday.

As on 30 September last year, the import cover provided by the forex reserves rose to 9.8 months from 8.9 months at the end of March 2015, said the report.

The reserves at the end of September stood at $350.29 billion as compared to $341.64 billion at the end of March.

Weekly data on forex reserves released on Friday showed that reserves as of 1 January continue to be at just over $350 billion.

Along with an improvement in the import cover, other indicators on the adequacy of reserves have also improved. For instance, the ratio of short-term debt to forex reserves, which was at 25% at the end of March, declined marginally to 24.6% as of September 2015.

The ratio of volatile capital flows (defined to include cumulative portfolio inflows and short-term debt) to the reserves has declined from 92.3% to 88% in end-September 2015.

In August-September 2013, when the rupee was under pressure, the cover provided by the forex reserves to imports dwindled to just about seven months.

At the end of September 2013, forex reserves of $294.8 billion were enough to cover just 7.2 months of exports. The rupee hit an all-time low of 68.85 to the dollar on 28 August 2013. The pressure on the rupee forced RBI to sell dollars to try and protect the domestic currency.

However, RBI governor Raghuram Rajan moved to shore up the reserves immediately after taking charge in September 2013. Among other measures, he announced a special swap window for non-resident deposits.

The schemes were a success and brought in $34 billion. Strong portfolio flows into the equity and debt markets in 2014 helped RBI shore up reserves by mopping up excess dollars.

Some of the NRI deposits raised in 2013 will come up for repayment in the second half of fiscal year 2017, but analysts don’t expect that to weigh on reserves. A report by Citi Research on Monday said the repayment of concessional NRI deposits (initiated in 2013 for ~3 years) to the tune of $25 billion during the second half of fiscal 2017 could likely stress overall capital flows in the next fiscal.

The report, however, noted that RBI has covered most of this in the forwards market, suggesting it could comfortably meet its repayment obligations without dipping into its forex reserves.

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