'India's forex reserves above optimal level'
India's foreign exchange reserves at around $286 billion are much above the optimal level, said a recent IMF study.business Updated: Aug 26, 2008 13:26 IST
India's foreign exchange reserves at around $286 billion are much above the optimal level, said a recent IMF study, pointing out that 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, said an IMF working paper on "Are emerging Asia's reserves really too high?".
Among the important Asian countries which have near optimal foreign exchange reserves include Singapore, Philippines and Indonesia, it said.
According to the IMF study, as against the optimal reserves of about $175 billion towards the close of 2007, India's forex reserves totalled around $250 billion and continued to swell.
The reserve buildup, the study said, 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.