Volatile capital flows up till March: RBI

Ratio of volatile capital flows defined to include cumulative portfolio inflows and short-term debt

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Volatile capital flows have been increasing in India, despite the risks associated with these. The ratio of such flows to reserves increased from 83.9 per cent at the end of September 2012 to 96.1 per cent at the end of March this year, the Reserve Bank said. Volatile capital flows include cumulative portfolio inflows and short-term debt. This year, these flows have been finding their way to other markets, due to which the rupee is under pressure.

The ratio of short-term debt to the foreign exchange reserves, 28.7 per cent at the end of September 2012, rose to 33.1 per cent at the end of March. During the same period, the import cover declined from 7.2 months to seven months.

According to the report, RBI held 557.75 tonnes of gold, or nine per cent of the total foreign exchange reserves in value terms, as on March 29. Of this, 265.49 tonnes were held abroad in the custody of the Bank of England and the Bank for International Settlements (BIS).

Foreign currency assets are invested in multi-currency, multi-asset portfolios, according to norms, in line with best international practices. As of March-end, of the total foreign currency assets of $259.7 billion, $152.5 billion was invested in securities and $101.7 billion was deposited with other central banks, BIS and the International Monetary Fund.

The remaining $5.5 billion comprised deposits with foreign commercial banks and funds placed with external asset managers, the report said.

The rate of earnings on foreign currency assets and gold decreased from 1.74 per cent in July 2010-June 2011 to 1.47 per cent in July 2011-June 2012, reflecting the generally low global interest rate environment.

According to the report, India’s international investment position, a summary record of the country’s external financial assets and liabilities, was -$307.3 billion as of March-end, implying external liabilities were more than external assets.