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13 March 2014
www.ramakrishnavadlamudi.blogspot.in
Return on India's Forex Reserves %
http://ramak rishna vadla mudi.blogspot.in/
1.74
1.47
1.45
www.ramakrishnavadlamudi.blogspot.in
13 March 2014
RBI resorted to massive accretion of foreign exchange reserves in 2006 and 2007 to arrest steep appreciation of rupees external value against the US dollar. The excess money created in the banking system was simultaneously absorbed through normal open market operations (OMOs) and Market Stabilisation Scheme (MSS). RBI deploys these foreign exchange reserves in several instruments, mainly in the US Treasury securities and earns some return on them. Of course, there are various objectives of holding these reserves. Earnings are just incidental to the larger objectives of macroeconomic policies.
Indias import cover is on the decline for the past six years. From a recent peak of 12.4 months at the end of September 2009, it has nosedived to 6.6 months for September 2013, as per the latest data from RBI. Indian rupee witnessed steep depreciation against the dollar in the past few years, due to a variety of local and global factors. RBI intervened heavily in the markets and sold foreign exchange to shore up the rupees external value, resulting in erosion of reserves. (Of course, reserves are now increasing and the latest figure is $ 294.36 billion. Rupee is now gaining against the US dollar in the past few months). Indias import cover fell to a low of three weeks of imports as at end of December 1990; reached a peak of 16.9 months of imports as at end of March2004. Import cover is the number of months of imports foreign exchange reserves could pay for.
Date source: RBI website. Note: RBIs financial year starts from July and ends with June. Disclaimer: The author is an investment analyst. He blogs at: http://ramakrishnavadlamudi.blogspot.in/ http://www.scribd.com/vrk100 Twitter @vrk100
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