In a first, reserves hit $400 billion


The country’s foreign exchange reserves have touched $400 billion for the first time. Four years after the rupee hit a historic low, the RBI’s forex kitty has swelled by more than $125 billion. The reserves act as a buffer to be used in challenging times.

Data showed foreign exchange reserves rose by $2.6 billion from the previous week to $400.7 billion in the week ended September 8. Foreign currency assets mainly contributed to the increase in the period.

In 2017, foreign exchange reserves increased by $40 billion.

While foreign exchanges reserves are at record high, economists said the central bank would continue to buy such assets to boost the import cover.

“While foreign exchange reserves have touched $400 billion for the first time, import cover has fallen if we compare it with 2007, when import cover was at its peak,” Indranil Sen Gupta, chief India economist, Bank of America Merrill Lynch told The Hindu.

At present, the import cover is about 11 months lower than its 2007 levels, when it was above 14 months.

“So, we expect RBI to continue build its foreign exchange reserves. The RBI’s FX policy response will likely be asymmetrical. It will aggressively pick up FX if the U.S. dollar weakens but allow depreciation if the U.S. dollar strengthens,” Mr. Sengupta said.

The rupee, which has been one of the best performing currencies in Asia in 2017, has appreciated about 6% on the back of foreign fund inflows mainly due to reform measures of the government and central bank’s resolve to stick to the inflation target.

Exactly four years ago, on September 6, 2013, foreign exchange reserves plummeted to $274.8 billion with the rupee hitting a record low following ‘taper tantrums’ by the U.S. Federal Reserve. A series of measures were unleashed by the government and RBI including offering a window to garner FCNR (B) along with restrictions on non-essential imports, that saw the rupee’s fortune swing and the foreign exchange reserves starting to swell.

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Printable version | Jan 23, 2020 3:03:03 AM |

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