Import cover increases to 9.8 months, says RBI

Published on : January 12, 2016 Topic : Business
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The country’s foreign exchange reserves, which were $350.4 billion as on September 2015, were able to support imports for 9.8 months, up from 8.9 months as on end March, the Reserve Bank of India (RBI) said on Monday in its Half Yearly Report on Management of Foreign Exchange Reserves.

As on end March, 2015, foreign exchanges reserves were at $341.64 billion.

Import cover was 8.1 per cent in September 2014. The country’s foreign exchange reserves were at $350.4 billion as on January 1, 2016 – the same level seen on September end.

Import cover is an important indicator of the stability of the currency. During the currency crisis of 2013, when foreign exchange reserves fell to around $275 billion, import cover dipped to around seven months. According to currency experts, eight to ten months of import cover is essential for the stability of the currency.

During the first quarter of the previous financial year (April-June), reserves went up by about $ 15 billion but the next three months reserves fell.

Foreign exchanges reserves mainly consist of foreign currency assets (FCA), though there is also gold, special drawing rights and reserve tranche position in International Monetary Fund, in the basket.

“Movements in the FCA occur mainly on account of purchases and sales of foreign exchange by the RBI, income arising out of the deployment of the foreign exchange reserves, external aid receipts of the Central Government and the effects of revaluation of the assets,” RBI said.

Separately, RBI also released data on its intervention in the currency market for November.

In the spot market, the net intervention was only $ 15 million but the data shows, the central bank has brought and sold close to $ 3 billion in November.

The central bank has also intervened in the currency future markets in November, data showed. The net transaction in the futures segment is nil as the central bank purchased and sold $ 2.4 billion each.

In a rare admission in December, the RBI said it had decided to intervene in the Exchange Traded Currency Derivatives (ETCD) segment – in addition to spot and forward market – without specifying if it had already been active in that market.

The move was aimed at curbing volatility in the currency market ahead of the crucial US Fed meet which eventually decided to increase interest rate for the first time almost in a decade – as expected by the market participants.

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