The Reserve Bank of India is not in favour of limiting the build-up of foreign exchange reserves, now at over $93 billion, as the country would require them for higher economic growth, Usha Thorat, executive director at the central bank, said.
While favouring foreign direct and portfolio investment inflows, RBI would be cautious on short-term debt inflows mainly through non-resident Indian deposits with banks, she said.
"There is no limit on holding forex reserves. It is equal to the country's GDP. But in some countries, the reserves are 3-4 times the GDP," Thorat said at a Confederation of Indian Industry conference on export financing in New Delhi on Thursday.
India's forex reserves crossed the $93 billion mark following a further rise of $613 million due to fresh inflows for the week ended November 7.
High forex reserves have helped the country absorb the shocks of $5.5 billion outflow on account of State Bank of India's Resurgent India Bonds without affecting the market.
Moreover, the country is in a position to safely prepay costly foreign loans worth over $2.8 billion this fiscal. India prepaid close to $3 billion worth of World Bank and ADB loans last fiscal.
Admitting that the high reserves need to be absorbed and sterilised, Thorat said, "RBI has been taking various measures to manage the excess liquidity in the system."
But as the economy picks up and productive capacities grow, higher reserves will be absorbed automatically, she said.
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