India’s Record FX Reserves Adequate to Offset Shocks, HSBC Says
The finding was based on previous episodes of stress that resulted in the reserves witnessing an average $50 billion draw down.
(Bloomberg) --
At almost $500 billion, India’s foreign exchange reserves are adequate to absorb any shocks from capital outflows amid rising volatility in the global financial markets, according to HSBC Holdings Plc.
The finding was based on previous episodes of stress that resulted in the reserves witnessing an average $50 billion draw down, wrote Pranjul Bhandari, chief India economist at HSBC in Mumbai. India saw outflows of nearly $5 billion in the first two weeks of March amid prospects of a greater hit to global economic growth as the coronavirus pandemic triggered wider travel restrictions and business disruptions.
“Our study of India’s reserve losses over four recent episodes -- the global financial crisis, the euro zone debt crisis, taper tantrum and the Federal Reserve’s tightening cycle -- suggest that if similar drawdowns were to occur again, India’s current FX reserve holdings would be adequate,” Bhandari said. The country has adequate buffers across all reserve adequacy metrics, including imports and debt covers, should it face a similar situation, she added.
Bhandari separately expects the RBI to resume interest rate cuts in April, easing by as much as 25-40 basis points, in addition to infusing sufficient dollar and rupee liquidity, smoothing FX volatility, and undertaking sector-specific regulatory easing. The central bank, which delivered 135 basis points of rate reductions last year, has been on pause since December after inflation surged unexpectedly.
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To contact the reporter on this story: Anirban Nag in Mumbai at anag8@bloomberg.net
To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Karthikeyan Sundaram, Anto Antony
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