Forex reserves down to 7-month import cover at end-March'12

Mumbai: India's foreign exchange reserves came down to USD 294.5 billion as of March end 2012, enough to cover imports of seven months, as against eight-and-half months about six months ago.

The reserves -- a parameter to gauge a country's ability to absorb external shocks -- came down to USD 294.4 billion at March 2012 end from USD 311.5 billion at September 2011 end mainly due to "intervention in the domestic foreign exchange market and effect of revaluation," a RBI report said.

"At the end of March 2012, the import cover declined to 7.1 months from 8.5 months at end-September 2011," said RBI's 'Half Yearly Report on Management of Foreign Exchange Reserves: October 2011 - March 2012'.

India's import bill was USD 37.9 billion in July 2012.

Import cover refers to the number of months of imports that could be paid for from the foreign exchange reserves -- an important parameter in gauging a nation's ability to absorb external shocks.

With the changing profile of capital flows, traditional approach of assessing reserve adequacy in terms of import cover has been broadened to include a number of parameters, the RBI said.

As per the report, the ratio of short-term debt to the foreign exchange reserves which was 23.0 percent at end-September increased to 26.6 percent at end-March 2012.

Also, the ratio of volatile capital flows (defined to include cumulative portfolio inflows and short-term debt) to the reserves increased from 68.3 percent as on end-September 2011 to 79.9 percent as at end-March 2012.

RBI further said the rate of earnings on foreign currency assets and gold decreased from 2.09 percent in July 2009-June 2010 to 1.74 percent in July 2010-June 2011, "reflecting the generally low global interest rate environment".

As at end-March 2012, the RBI said out of the total foreign currency assets of USD 260.1 billion, USD 140.3 billion was invested in securities and USD 114.3 billion was deposited with other central banks, BIS and the IMF.

The rest (USD 5.5 billion) comprised deposits with foreign commercial banks and funds placed with the External Asset Managers.

The report also said the RBI held 557.75 tonnes of gold forming about 9.2 percent of the total foreign exchange reserves in value terms as on March 31, 2012.

Of these, 265.49 tonnes are held abroad in deposits/safe custody with the Bank of England and the Bank for International Settlements.

The foreign exchange reserves consist of major currencies such as US dollar, Euro, Pound Sterling and Japanese Yen.

Source : zeenews.india.com