Forex reserves at $330 bn, but not enough to fight extreme volatility: Expert

There has been a view that the RBI has been focusing on accumulating dollars to fight any external challenges in future, like the shift in the US Fed's policies to tighten which may result in withdrawal of money from emerging markets like India.

The Dollar Business Bureau Inflation “India cannot be complacent though its foreign exchange reserves are a comfortable level of $330 bn,” said H R Khan, RBI Deputy Governor. “Though we would be the last affected in any kind of crisis or vulnerabilities, India cannot afford to lose the momentum of being in a favourable position among emerging economies,” said Khan and added “no amount of foreign exchange reserves can cushion when there is extreme volatility or external shocks." With an over $6 bn jump India’s forex is at an all-time high as the macro-economic vulnerabilities have significantly receded due to the fall in prices of oil and low inflation. Sources said that the apex bank has been engrossed in hoarding dollars to fight any future challenges externally, something like developed countries withdrawing funds from emerging markets like India. In the past, forex reserves bottomed out to $280 bn and the Central Bank had to sell to arrest a single way slide in the rupee after the May 2013 announcement by the US Fed to taper its liquidity infusing programme, which resulted in fund outflows from India.