India's foreign reserves in 'comfortable range' despite recent decline: DBS

Another 5-8 per cent fall in reserves will not jeopardise the situation, DBS said in a report

India's foreign reserves are in a "comfortable range" and another 5-8 per cent fall in reserves will not jeopardise the situation, says a DBS report.

According to the global financial services major, a challenging global environment has compelled RBI to intervene aggressively this year to contain rupee depreciation, resulting in significant drawdown in foreign reserves.

"In all, despite the recent decline, India's reserves are in a comfortable range on most metrics. Given lingering external risks, another 5-8 per cent fall in reserves is probable, but is unlikely to jeopardise the adequacy math by much," the report said.

According to DBS, foreign reserves have declined from a record high of USD 426 billion in April to USD 403 billion in early-August as the rupee suffered significant losses since April.

The rupee has been among the worst-performing currencies against the dollar compared with its peers so far this year and breached the 69-mark against the American unit amid global uncertainties and concerns over inflation.

The rupee nosedived to its life-time low of 69.62 against the dollar in morning trade today in line with weakening domestic equities and global markets rout.

As a percentage of GDP, India's reserves have been smaller than most in the region for a few years now and this is partly the reason why the authorities have had a tendency to build buffers as and when the opportunity arises.

However, the report noted that "further accretion to reserves is unlikely this year as foreign capital flows slow, and current account pressures resurface. Nonetheless, the authorities will return to build reserves as and when the macro-environment improves".