India’s foreign reserves are in a “comfortable range” and another 5-8 percent fall in reserves will not jeopardise the situation, DBS said in a report.
According to the global financial services major, a challenging global environment has compelled the Reserve Bank of India to intervene aggressively this year to contain rupee depreciation, resulting in a significant reduction in foreign reserves.
“Given lingering external risks, another 5-8 percent fall in reserves is probable, but is unlikely to jeopardise the adequacy math by much,” the report said.
According to DBS, foreign reserves have declined from a record high of $426 billion in April to $403 billion in early August as the rupee suffered significant losses since April.
The rupee has been among the worst-performing currencies against the dollar compared with its Asian peers so far this year and breached the 69-mark against the American unit amid global uncertainties and concerns over inflation.
The rupee closed at a life-time low of 69.93 versus the dollar in line with weakening domestic equities and global markets rout.
As a percentage of GDP, India’s reserves have been smaller than most in the region for a few years now and this is partly why the authorities have had a tendency to build buffers as and when the opportunity arises.
Further accretion to reserves is unlikely this year as foreign capital flows slow, and current account pressures resurface. Nonetheless, the authorities will build reserves when the macro-environment improves.