Forex reserves hit new high, but import cover falls to 10-month low
Kolkata: India's foreign currency reserves hits a new high at $422.533 billion last week, which is good enough to cover 10 months of imports.
The previous peak was $421.915 billion seen on February 2.
Reserve Bank of India data showed the reserves rose $1.198 billion in the week to March 23. The improved overseas dollar inflows in March reversing the February's trend of outflows has helped accumulation of reserves, forex dealers said.
RBI does not provide reasons behind rise or fall in reserves.
According to NSDL data, overseas investors pumped in a net Rs 2662 crore in local debt and equities in March so far. February saw a net outflow of Rs 11,288 crore.
"A stronger capital account led to higher accretion of forex reserves," said CARE Ratings.
A research note from DBS Bank said the rise in reserves helped India's import coverage ratio to a comfortable 10x in FY18 (reserves minus gold holdings) against sub-7x in 2012-13, but it is below the recent peak of ~10.5-11x in the past two years.
"Compared to Q3 2013 lows i.e. taper tantrum, Indias reserves stock has risen by the most compared to its other Asian peers," DBS said.
However, India's high external liability which rose to 20% of GDP remains a concern. Total external debt touched a record high of $496 billion in September 2017 compared with $472 billion in March 2017 and $405 billion in June 2013.
Both long- and short-term debt is up between end-FY17 and present. Under long-term debt, bulk of the rise is due to higher foreign portfolio investment into debt, captured under commercial borrowings. The rise in short-term debt has been largely due to trade-related credit, DBS said.