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‘Reserves firepower to help stem rupee’s losses’
News:
- The centre government affirmed that India has adequate foreign exchange reserves to deal with the current volatility.
Important facts:
- 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).
- 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.
- Presently the country’s forex reserves is approx. $410 billion
- The forex reserve situation is much better compared to 2013 crisis.
- India has witnessed increased forex reserves,services exports and inflow of remittances.
- Recently RBI has raised repo rates by 25 basis points.
- 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.
- The government could further raise funds through foreign currency non- repatriable (FCNR) deposits, sovereign bonds or other routes to increase reserves.
