India’s forex reserves above optimal level, says IMF
According to an IMF study, India’s forex reserves towards the close of 2007 totalled around $250 billion as against the optimal amount of about $175 billion, and continued to swell. The figure has since increased to around $286 billion which is much above the optimal level. According to the study, forex accumulation has reduced external vulnerabilities and decreased the risk of financial contagion.
India ranks among the other major emerging Asian nations like China, Hong Kong, Korea, Taiwan and Thailand which have accumulated excessive foreign exchange reserves.
According to the study, “The reserve buildup has reduced external vulnerabilities in all emerging market economies in Asia and helped in maintaining financial stability in the region as a whole.”
According to an IMF study, India’s forex reserves towards the close of 2007 totalled around $250 billion as against the optimal amount of about $175 billion, and continued to swell. The figure has since increased to around $286 billion which is much above the optimal level. According to the study, forex accumulation has reduced external vulnerabilities and decreased the risk of financial contagion.
India ranks among the other major emerging Asian nations like China, Hong Kong, Korea, Taiwan and Thailand which have accumulated excessive foreign exchange reserves.
According to the study, “The reserve buildup has reduced external vulnerabilities in all emerging market economies in Asia and helped in maintaining financial stability in the region as a whole.”
“Not only are individual economies better prepared to weather a sudden stop of capital flows, but the risk of financial contagion in the region may have decreased as a result of the reserve accumulation”, the IMF report said.
The study on foreign exchange reserves, which is based on different parameters and ratios like reserves to months of imports, reserves to broad money supply, reserves to GDP, reserves to short-term debt and reserves to total foreign exchange liabilities, showed that India is holding more than optimal reserves on all counts.
Contributed by:
Prof Bikramjit Sen
(Globsyn Business School)
Source:http://www.livemint.com/2008/08/26104624/India8217s-forex-reserves-a.html?h=A1
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