India’s foreign exchange reserves fell to over 7-month low of $402.7 billion in the week ended August 3. Total forex reserves dipped $1.49 billion from $404.19 billion in the week ended July 27, 2018, Reserve Bank of India (RBI) data showed.
India’s forex reserves have been falling steadily over the past four months after it hit an all-time high of $426.08 billion in the week ended April 13. Experts attributed the decline to RBI intervention to stem rupee’s slide against the dollar following capital outflows from the debt market. While rupee has slipped below 69 against the dollar in recent times, on Friday it closed at 68.83 to a dollar on Friday.
Since April 13, foreign exchange reserves have declined by 5.5 per cent or $23.4 billion.
Despite dipping forex reserves, experts aren’t concerned. “India has adequate reserves to meet its liabilities and so there is no cause of worry. Also, I feel that the decline in reserves is on account of RBI’s intervention in the forex market to control volatility and that is a prudent measure,” said DK Joshi, chief economist at Crisil.
A recent Crisil report said that India’s short-term external debt as a per cent of total external debt has remained broadly stable over the past few years (20.5 per cent in FY14 to 19.3 per cent in FY18) and the stability in short-term debt obligations has been accompanied by India’s improving ability to service it. It further pointed that the debt service ratio — ratio of gross debt service payments to current account receipts — has fallen over the last couple of years from 8.8 per cent in FY16 to 7.5 per cent in FY18 owing to recovery in export earnings relative to the past few years and a marginal fall in gross debt service payments.
Another factor than can be attributed to the decline in forex reserves is a rise in the trade deficit on account of rising crude oil prices and electronic imports.
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