New Delhi, April 1 — India's foreign exchange reserves of over $700 billion are sufficient to manage the rupee's position and prevent sharp fluctuations. This information was provided in a report released on Tuesday.
As per agency report, the SBI Research report stated that the current foreign exchange reserves are equivalent to more than 10 months of imports, and short-term debt is equal to 20 percent of the foreign exchange reserves, providing the Reserve Bank of India (RBI) with ample room to support the rupee.
However, the research firm warned that volatile capital flows and high oil prices pose risks for the near-term outlook. It urged several policy measures, including a special dollar window to meet the daily demand of $250-300 million for oil marketing companies.
The report indicated that this would provide better clarity on the dynamics of actual foreign exchange demand and supply, and help measure the effectiveness of various measures initiated by regulators to prevent unnecessary volatility.
It suggested that a limit of $100 million should be imposed only on the trading book, rather than at the entire bank book level, as this would create operational challenges. It also proposed 'Operation Twist' to increase short-term yields and decrease long-term yields, ensuring that various reference rates remain within the set limits and align with the policy rate.
The central bank has taken stringent steps to support the rupee, but the firm urged for an acceleration of interventions by bringing in currencies demanded from external markets and incorporating alternative mechanisms, such as a special USD window for oil marketing companies, as the rupee's decline is significantly greater than the country's macro fundamentals.
