‘Reserves firepower to help stem rupee’s losses’

‘Reserves firepower to help stem rupee’s losses’

News:

1. The centre government affirmed that India has adequate foreign exchange reserves to deal with the current volatility.

Important facts:

2. India’s volatility is driven by the following factors:

• Proposed U.S. sanctions on Iran
• The mismatch in demand and supply of oil
• Ongoing trade war between the U.S. and China could impact exports from emerging markets including India.
• Downfall in Rupee (about 7% this year, making it the worst performing currency in Asia).

3. Impacts:

• Trade deficit is expected in upcoming years.
• Rise in oil prices could further widen the trade deficit, which inconsequence can put pressure on rupee.

4. Presently the country’s forex reserves is approx. $410 billion
5. The forex reserve situation is much better compared to 2013 crisis.
6. India has witnessed increased forex reserves,services exports and inflow of remittances.
7. Recently RBI has raised repo rates by 25 basis points.
8. The increase in the key repo rate could squeeze credit for companies as well as lead to some cuts in capital spending by the government.
9. The government could further raise funds through foreign currency non- repatriable (FCNR) deposits, sovereign bonds or other routes to increase reserves.