Sunday, May 29, 2016

Forex reserves grow just $18 billion to $360 billion in FY16

MUMBAI: India's total foreign exchange reserves touched $360 billion by end March 2016, up by $18 billion over the previous year's levels, data from the Reserve Bank of India showed. The reserves include non-dollar currencies and their revaluation impact against the dollar. Hard dollar mop-up by the central bank through currency market intervention was only $10.2 billion in the year.

Ironically, $55 billion record FDI inflows[1] — considered more durable flows — have not helped in reserves accretion.

"This in part is due to central bank having to draw upon the reserves buffer to contain rupee volatility[2] and slow the unit's one-sided descent in times of extreme external volatility," said Radhika Rao, chief India economist at DBS.

"A case in point was Feb 16, when the rupee was edging close to a record low against the dollar on the back of plunge in global crude and commodity prices. Besides, the slowdown in China's economy and domestic fiscal concerns were added concerns."

Crude oil[3] for example dipped to multi-year lows to touch around $30 a barrel follo wing higher crude supplies from gulf countries.

At 67 to the dollar, the rupee is still close to its September 2013 levels which forced the central bank to come out with a special scheme of FCNR(B) dollars to raise $25 billion to shore up the rupee.

Going forward, experts expect the RBI[4] to continue to use dollar reserves to protect the rupee. "A drawdown is inevitable to stem sharp portfolio outflows from the domestic markets," said Rao.

The $25 in FCNR(B) mop-up of September 2013 matures this September. Reserve Bank of India chief Raghuram Rajan has already said he is confident of handling any pressure on account of that.

"There could be some pressure on the currency if some of th ose deposits are not rolled over (as terms are less attractive)," said an economist.

"But it may not morph into acute pressure on the domestic markets."


  1. ^ FDI inflows (
  2. ^ rupee volatility (
  3. ^ Crude oil (
  4. ^ RBI (

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