India’s forex reserves cross $400 billion mark yet again after 5 weeks

Published On: 01, Dec 2017 | Source:

Foreign Exchange reserves, once again, crossed the $400 billion mark after slightly falling over the past five weeks, data from the Reserve Bank of India show. On September 8, the Forex Reserves had touched the new-high for the first time at $400.727; this time it touched $400.742 billion. The rise in India’s Forex Reserves was lauded by both Moody’s and S&P recently while evaluating the credit rating of the country, even as the US treasury frowned at the record stock.

According to the DBS group, India’s Forex reserves are a win-win situation if any international crisis arises amidst the fiscal slippage fear due to the crude oil price hovering over $60 per barrel. The current Forex reserves are enough to cover close to 11 months of import.

Earlier, the RBI took just 11 months to reach the $300-billion mark in February 2008 from $200 billion of reserves it had in April 2007. But since then it stood between $300 and $400, falling to nearly $399 billion. “The current stock is sufficient to cushion India against unexpected global risks,” DBS had said in a note. India’s foreign reserves rose sharply driven by portfolio inflows, investment flows and a narrower current account deficit, it added. However, the RBI did not specify the reason for the surge.

The US Treasury last month had said that it was going to “closely monitor” RBI’s activities as there was a “notable increase in the scale and persistence” of dollar purchases, but notably did not add India under its watch list for potential currency manipulators, to which former Central Bank governor Raghuram Rajan responded saying that the US should not label India as one “even if it’s thinking of it”.

The US Treasury uses three criteria to determine manipulation: Bilateral trade surplus with the US to $20 billion, current account surplus at 3% of country’s GDP, and net purchases of foreign currency to 2% of country’s GDP over a year. India’s foreign exchange buying had surged to 1.8% in 12 months till June, which was close to the 2% limit, but had not crossed it.