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India's foreign exchange reserves could fall below the $ 400 billion mark. However, experts believe that this should not be a cause for concern.
The accumulation of reserves has occurred through portfolio flows, and now that these flows have reversed, putting pressure on the currency, the central bank its accumulated reserves defending the rupee, have said the market experts and economists.
At the beginning of September 2017, reserves reached $ 400 billion for the first time. He added $ 40 billion net of reserves in his account since January 2017. He was helped by a portfolio flow of about $ 27 billion in debt and stock.
Portfolio flows began to reverse this year. Since the beginning of the year, outflows of equity and debt have totaled just over $ 7 billion, with the debt segment alone accounting for $ 6 billion
The central bank had to intervene aggressively against the dollar and all Asian currencies, including the rupee, depreciated.
But the recent fall in reserves does not mean that it will continue to remain so. As the currency depreciates, it also becomes an attractive investment destination for traders. 19659002] "Although India has experienced REIT outflows in the last six months in India of $ 6.5 billion and a RBI intervention of $ 25-26 billion reflecting declining reserves, the Possibility of a sharp fall in reserves seems Emerging markets are stabilizing, which should have a positive impact on India, "said Manish Wadhawan, Head of Fixed Income Markets Global Markets, HSBC India [19659010] "Trade tensions, the actions of the Fed, commodity markets, especially oil, emerge m market currencies, especially the yuan, are key factors to watch out for." The current account of India has been affected by high oil prices, but the recent depreciation of the rupee will help to restore the flows as assets become attractive to investors.In fact, the intervention of the RBI has been a stabilizing factor onthe currency markets, "said Wadhawan.
But if the RBI is to reactivate its reserves or stop eroding them further, the central bank may adopt, for example, the imposition of capital controls. But these measures will have a significant negative impact on the country as an investment destination.
The central bank can also open a dollar swap facility with oil trading companies, such as the one it had started in 2013. Here, oil companies get dollars directly from the RBI and return it. later. The market is not affected, eliminating the need for the RBI to intervene to this extent.
However, the best way for now seems to be to raise dollars through deposit systems like the one in 2013, where the RBI billion through non-resident Indians, or the L & # 39; 39, increase in sovereign bonds in dollars. But these are probably far away, and should be done at a time when the situation seems under control.
"If we are to do it, we will have to do it from a position of strength and not from a position of weakness." A NRI depot at this stage will introduce some nervousness into the Our reserves have grown by $ 100 billion in 10 years – even though it's down from $ 10 billion to $ 15 billion now, that should not be a concern, "said Soumyakanti Ghosh, chief economist from the group at the State Bank of India
.As a result, a number of economists also said that the situation would be under control in the coming days as trade between the United States and China. the tension is easing The oil crisis in Iran is already showing some signs of improvement.This should be good for the rupee and portfolio flows should resume.
Also, on an autonomous basis, India does not have as many assets denominated in dolls as some other countries in the region. And short-term foreign debt accounts for only about 25 to 30% of total reserves. Therefore, total reserves can be technically allowed to dive without much trouble.
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