Large Forex Kitty may Not be Good Enough Cush­ion

NO BUF­FER The re­serves are the high­est ever, but in terms of num­ber of months’ im­ports that it can fund, it is still much lower than the level in 2008 Record High

The Economic Times - - Finance & Commodities - @times­group.com

Gay­athri.Nayak Mum­bai: In­dia’s for­eign ex­change re­serves may be at the high­est level ever. But that may not be suf­fi­cient buf­fer at a time when the Fed­eral Re­serve is con­sid­er­ing un­wind­ing of its quan­ti­ta­tive eas­ing strat­egy which will have a rip­ple-down ef­fect on the fi­nan­cial mar­kets. Trou­ble may be com­pounded if lo­cal eco­nomic ac­tiv­ity re­vives or if global com­mod­ity prices rise.

For­eign ex­change re­serves are at $392.9 bil­lion, the high­est ever that In­dia’s cen­tral bank has ever amassed. But in terms of num­ber of months’ im­ports that In­dia’s forex re­serves can fund, it is still much lower than the level in 2008 be­fore the global fi­nan­cial cri­sis touched its peak.

Im­port cover of re­serves, an im­por­tant mea­sure of for­eign ex­change re­serves ad­e­quacy, is cur­rently ad­e­quate to fund a lit­tle over 10 months’ im­ports com­pared to over 14 months’ im­ports that the re­serves could fi­nance in early 2008 un­til Septem­ber that year, when the cri­sis deep­ened vir­tu­ally lead­ing to the col­lapse of the global fi­nan­cial mar­kets.

“Ad­mit­tedly, im­port cover of re­serves, cur­rently ad­e­quate to fund Cur­rent forex re­serves CUR­RENT RE­SERVE

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