RBI Report Highlights India’s Forex Reserves Cover at 11.2 Months of Imports

RBI Report Highlights India’s Forex Reserves Cover at 11.2 Months of Imports



The Reserve Bank of India (RBI) released a detailed report on October 24, 2024, presenting an overview of India’s foreign exchange reserves and the country’s International Investment Position (IIP). The report provides insights into India's economic resilience against external shocks and highlights changes in reserves and liabilities as of June 2024.


India’s Forex Reserves Import Cover Declines Slightly


According to the RBI report, as of June 2024, India's foreign exchange reserves cover stands at 11.2 months of imports (balance of payments basis), down from 11.3 months at the end of March 2024. This decline, although minor, reflects a slight reduction in the buffer against external economic volatility. The import cover is a crucial indicator of the country’s financial health, as it denotes how many months of imports can be supported by the current forex reserves, demonstrating India's resilience to global financial shocks.


> "At the end of June 2024, foreign exchange reserves cover of imports (on balance of payments basis) stood at 11.2 months (11.3 months at end-March 2024)," the report stated.


Increase in Short-Term Debt Ratio to Reserves


The report notes an increase in the short-term debt ratio relative to India’s forex reserves. Short-term debt on an original maturity basis represented 19.7% of reserves at the end of March 2024. By June 2024, this figure rose to 20.3%, indicating a growth in short-term liabilities and a potential factor for close monitoring given its impact on reserve adequacy.


Rise in Volatile Capital Flows Ratio


The report highlights a rise in the ratio of volatile capital flows—which includes cumulative portfolio inflows and outstanding short-term debt—relative to reserves. As of June 2024, this ratio stood at 70.1%, up from 69.8% at the end of March. This uptick in volatile capital flows relative to reserves signals a slight increase in the risks associated with short-term capital movements.


India’s International Investment Position (IIP)


The RBI report also provides updates on India's International Investment Position (IIP), which is a comprehensive summary of the country’s external assets and liabilities. Between June 2023 and June 2024, India’s external assets saw an increase of USD 108.4 billion, while external liabilities rose by USD 97.7 billion. This growth in both assets and liabilities reflects India's ongoing engagement in international markets and a robust level of external financial activity.


Assessing Economic Stability and Resilience


These statistics from the RBI provide an important assessment of India’s external economic position in the face of global financial dynamics. Indicators such as the import cover, debt-to-reserves ratio, and the volatile capital flows ratio are instrumental in assessing the country's economic stability. Together with changes in the IIP, these measures indicate the country’s ability to withstand external economic pressures and ensure economic resilience amid fluctuating global markets.


Conclusion


The RBI’s latest report offers a critical look at India’s forex reserves, import cover, and international investment activities. While the minor decline in import cover and the rise in short-term debt are points to monitor, the overall growth in external assets and liabilities signals a dynamic and engaged external financial profile for India. The RBI's insights underscore the importance of carefully balancing reserves, external liabilities, and capital flows to maintain economic stability in an evolving global environment.

Location: Varanasi, Uttar Pradesh, India

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