After India’s forex reserves hit a new high of $327.88 billion in the week ended January 30, RBI Deputy Governor H R Khan has said that though the country’s forex kitty was at an all-time high, there should be no complacency as no amount of reserves may be enough to fight extreme volatility, as the shift in the US Fed’s policies to tighten may result in withdrawal of money from emerging markets like India.
The deputy governor has said that “We are much better placed. In terms of fool-proofing our balance sheet we have done quite a few things,” but we can’t afford to be complacent and we should be prepared to face vulnerabilities.
The surging reserves come as foreign investors have continued to be hefty buyers of bonds and shares because of expectations for economic reforms from Prime Minister Narendra Modi's government.
Khan further stated that there might be views that RBI has been focusing on accumulating dollars to fight any external challenges in future, as the forex reserves had depleted to $280 billion and the RBI had to sell to arrest a single way slide in the rupee after the May 2013 announcement by the US Fed to taper its liquidity infusing programme, which resulted in fund outflows from India. It was the worst rupee turmoil since a balance of payment crisis a decade ago because of dwindling reserves and a high current account deficit.