Dwindling forex pile may limit India's rupee defence, says BofAML

Eight months of import cover critical to rupee stability

India’s foreign-exchange reserves are shrinking fast and may soon reach a level that could hamper the central bank’s ability to defend the rupee, according to Bank of America Merrill Lynch. The solution lies in luring dollar flows by tapping overseas Indians, the bank said.

From a record $426 billion in mid-April, reserves have fallen by nearly $33 billion as the Reserve Bank of India sold dollars to stem losses in Asia’s worst-performing currency. A further $15-$20 billion erosion will leave the nation with an import cover of eight months, according to Indranil Sen Gupta, India economist at BofAML.

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