NEW DELHI — India’s foreign exchange reserves, now exceeding $700 billion, are substantial enough to deter speculative currency movements and give the Reserve Bank of India room to stabilize the rupee, according to a report released Tuesday.
SBI Research said the current reserve levels cover more than 10 months of imports, while short-term external debt remains below 20 percent of total reserves, providing the central bank with flexibility and time to intervene in currency markets if needed.
However, the report warned that volatile capital flows and elevated global oil prices could pose near-term risks to the rupee. It recommended targeted policy measures, including the creation of a special U.S. dollar window for oil marketing companies to meet their daily demand of $250 million to $300 million.
“This should allow better visibility on genuine FX demand and supply dynamics and in measuring the efficacy of various countermeasures initiated by the regulator to curb unwarranted volatility,” the report said.
The analysis also referenced the Committee on Capital Account Convertibility, noting that while India’s reserves are well above the recommended threshold of at least six months of import cover, short-term debt and portfolio investments remain higher than the suggested ceiling of 60 percent of reserves.
SBI Research further called for limiting $100 million caps to trading books rather than applying them at the overall bank balance sheet level, arguing that broader restrictions create operational challenges.
The report also suggested the use of an “Operation Twist”-style approach to manage yields—raising short-term rates while lowering long-term yields—to ensure key benchmark rates remain aligned with the central bank’s policy stance.
While acknowledging that the Reserve Bank of India has already taken steps to support the rupee, the report urged faster and more targeted interventions, including sourcing foreign currencies from external markets and deploying alternative mechanisms such as the proposed dollar window for oil firms.
It added that the recent depreciation of the rupee appears to exceed what underlying economic fundamentals would justify. (Source: IANS)
