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The Reserve Bank of India (RBI) will need to build a forex reserve of $400 billion, said Upasna Bhardwaj, Economist- Financial Markets, ING Vysya.
India currently has $317 billion in reserves. Speaking at a seminar on ‘Managing Foreign Exchange Risk’ conducted by Almus Risk Consulting in association with the National Stock Exchange in Mumbai, she said that at current levels of imports, this would amount to 10 months cover, which is considered a safe level of cushion to handle any volatility.
Asked about foreseeable risks to the rupee dollar rate, she said rising geopolitical tensions particularly with reference to Iraq may cause short-term problems. But she pointed out that these are blips because even if fighting in Iraq spreads to southern parts of the country and affects oil supply, there is, currently, spare capacity among other countries in OPEC.
Upasna said the timing and pace of withdrawal of liquidity injection by European Central Bank (which is just beginning) could be the other potential risk.
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