Business & Investment

IMF advises RBI to delay reserve accumulation

Now after the US Treasury has labeled India on / off as a currency manipulator IMF It also gives words of advice RBI About intervention policy in the foreign exchange market.

Multilateral institutions praised India’s policy efforts to boost reserves and strengthen its external position and advised central banks to oppose excessive foreign exchange market intervention. Foreign exchange intervention The IMF stated in a recently released country-by-country report on India.

In a previous report in December 2019, multilateral agencies called for warnings about limiting intervention in dealing with volatility, but this time they explicitly call for delaying reserve buildup. ..

“The guiding objectives of India’s foreign exchange reserves are similar to those of many central banks in the world,” the RBI said in a report on foreign exchange reserves released Wednesday. Demands for foreign exchange reserves can vary widely due to a variety of factors, including the exchange rate system adopted by the country, the degree of openness of the economy, the size of the external sector in a country’s GDP, and the nature of the market. “Security and liquidity constitute two objectives of India’s foreign exchange reserves, but return optimization is within this framework,” RBI said.

The IMF emphasized that foreign exchange reserves are sufficient for preventive purposes, at $ 599 billion as of the end of May 2009, and the preventive accumulation of reserves has led to external fluctuations in capital flows and soaring oil prices. Said that the risk of the vulnerability was reduced. In 20-21, the RBI’s total foreign exchange purchases amounted to 5.5% of the country’s GDP, the IMF said.

Reserves are $ 64.1 billion as of October 15, according to RBI data. In its latest report, the RBI states that at the end of June 2021, import foreign exchange reserve coverage fell from 17.4 months at the end of March 2021 to 15.8 months. It was 17.5% at the end of March 2021 and dropped to 16.8% at the end of June 2021. The ratio of variable capital flows to reserves, including cumulative foreign portfolio inflows and outstanding short-term debt, fell from 69.0% at the end. -65.5% from March 2021 to the end of June 2021

In a report in April 2021, a U.S. financial report to Congress entitled “Macroeconomic and Foreign Exchange Policies of U.S. Major Trading Partners” states that authorities will reflect exchange rates on economic fundamentals. Allows you to move in and refrain from foreign exchange intervention in irregular market conditions and excessive reserve accumulation. As the economic recovery takes hold, authorities need to continue to pursue structural reforms that help improve productivity and living standards, such as increasing openness to foreign financial flows and deepening the financial sector, which can further support economic growth. I have.

IMF advises RBI to delay reserve accumulation IMF advises RBI to delay reserve accumulation

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