24.1.15

Forex Reserves @ a Record High

India's foreign exchange reserves touched a record $322 billion, surpassing the previous high of almost $321 billion in September 2011 on the back of Reserve Bank of India's conscious efforts to build a war chest.
Latest data showed an accretion of $2.7 billion during the week ended January 16, essentially due to a rise in foreign currency assets. Market players said RBI had been buying dollars to ensure that the rupee stays strong. The Indian currency closed at 61.44 to a dollar on Friday .
At current levels, the reserves are sufficient to cover imports for eight-and-a-half months.
Globally , India has the ninth highest forex reserves, with China, Japan and Saudi Arabia leading the chart.However, the gap is huge given that China's reserves are in excess of $3.8 trillion--almost 12 times India's level.
Unlike the large foreign exchange holders, the country has a significant current account deficit, which is mainly because of imports of gold, crude petroleum and electronics. RBI's efforts to build a war chest have led to India's foreign exchange touching a record $322 billion. RBI has managed to increase the reserves by over $30 billion, or 10%, over the past 12 months when China added roughly $23 billion. During this period, Brazil's stock of forex has declined by 0.4% to $374 billion, while Russia's dropped 28% to $339 billion, Bloomberg data showed.
Overseas funds bought a record $42 billion of Indian stocks and bonds in 2014 and have invested $3.1 billion so far this year. There are expectations of higher inflows after the European Central Bank announced a $1.2 trillion stimulus on Thursday , especially when the other emerging market economies are on a weaker wicket compared to India.
The government and RBI had swung into action after reserves hit a three-year low in September 2013 and the Indian currency hit a record low and breached the 68 level against the dollar due to widening trade deficit. The central bank had put in place checks on outflows and initiated steps to boost inflows.

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