Falling Forex Reserves

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Indian Forex Reserves are reducing which indicates that chances RBI’s support in maintaining a weakening rupee is bleak.  Bank of America Merrill Lynch reports that attracting more of Dollar inflow could be possible only through tapping resources overseas Indians.   The statistics reveal that

  • From USD 426 million dollars in April the reserves have fallen by USD 33 billion since RBI had to sell dollars to augment the losses faced the worst hit Asia’s currency.
  • An additional USD 15 to USD 20 billion would leave India with an import cover of eight months, as per a leading Economist’s report.
  • Ability to sell is more and more getting restricted with such a high sale made so far. It is also felt that the reserves should be sufficient enough to cover the imports without any difficulty.
  • Reserves plunged to USD 5.14 billion in the week ended October 12, 2018, which is the biggest drop in a period of seven years which was due to an intervention of RBI in curbing the rupee fall.
  • This support from RBI enabled rupee to recover to the tune of 1.4% from a record low of 74.4825 on the previous day (Oct 11, 2018).
  • Also, India’s Forex reserves fell by USD 393.5 billion as on Oct 19, 2019, which saw rupee tumbling along with emerging market.
  • Report adds that Import cover stood at nine months versus seven months about five years ago and the ratio of reserves to short-term debt plus current account deficit is 1.4 times higher and foreign inflows are 130% of reserves versus 100% back.
  • Experts add that this is not a good sign and that efforts should be made to tap Indians abroad for raising USD 35 billion via bonds or deposits as was done in 2013 when a discounted swap window helped out in bringing in money from Indians abroad.

 

Author: Admin Bankedge

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