Forex reserves adequate: Patel

This despite their frequent interventions in foreign exchange marget in recent times to stabilise rupee vs the dollar

Despite market participants raising concerns over the falling foreign exchange reserves amid sharp depreciation of the rupee, an unfazed central bank on Wednesday said India’s reserves were adequate.

“Our reserves are adequate and 6.5-7 month of import cover is good. Short-term debt has increased but the short-term debt has been comfortably rolled over and refinanced over the last three years despite the high current account deficit (CAD),” said Urjit Patel, deputy governor, Reserve Bank of India (RBI), in a post-monetary policy conference call with analysts and researchers.

Foreign exchange reserves, at $279 billion as on July 19, is at a three-year low, and has depleted by over $8 billion in the past year. The rupee has depreciated 7.64 per cent against the dollar during the period.

The central bank has been intervening in the foreign exchange market regularly to stem the weakness in the rupee, which has depreciated more than 12 per cent since May. However, RBI has been cautious in intervening, and purchased dollar, too, whenever there was an opportunity. In March and April, for instance, the months in which the currency was stable, RBI mopped up over $1.3 billion.

According to market players, eight to 10 months of import cover is seen a pre-condition for a stable currency.

Patel said international agencies such as International Monetary Fund (IMF) felt the reserves position was adequate and comfortable.

“We continue to emphasise our view that the rupee will not settle down until RBI is able to recoup forex reserves. There is a limit to what rate hikes can achieve when the differential with the US Federal Reserve is already 700 bps and the $220 billion FII equity portfolio is far larger than the $30 billion FII debt portfolio. After all, the import cover has halved to seven months - last in 1996,” said Indranil Sen Gupta, India economist, Bank of America Merrill Lynch, in a note.