Forex reserves rebound under RBI Guv Raghuram Rajan

India’s forex reserves, at $319.99 billion in the week ended December 19, are within a hair’s breadth...

By: Agencies | New Delhi | Published:December 27, 2014 10:55 am

India’s forex reserves, at $319.99 billion in the week ended December 19, are within a hair’s breadth of their all-time highs of September 2011, when they were $320.78 billion, data from the Reserve Bank of India, show. Since governor Raghuram Rajan took over in September last year, the RBI has added a whopping $50 billion to reserves through various measures.

Around $36 billion came in through temporary special swap windows opened in September last year. The RBI has been largely a net buyer of dollars in 2014, both in the spot and forward markets. During January-October, the RBI bought a total $24.7 billion.

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For a net importer such as India, which also has a huge stock of external debt, a shield in the form of high reserves is an imperative to guard from external shocks. Reserves at the current level could cover an import bill of eight to nine months.

Bank of America-Merrill Lynch believes that this puts the country at a better footing than before in terms of external vulnerabilities.

“We worry less about the RBI’s ability to fight contagion than in the past 2 years,” Indranil Sengupta, chief economist, noted in a report.

The flight of dollars last year triggered by fears of policy tightening by the US Federal Reserve had beaten the rupee to an all-time low and spurred worries over India’s external position. Foreign investors have been pumping in dollars, primarily into the debt market. FIIs have poured in $26.4 billion so far in 2014 into bonds while investing around $16 billion into equities.

 

 

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