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Bursting forex kitty needed for growth: RBI

New Delhi, Nov. 20 (PTI): The Reserve Bank of India (RBI) does not favour limiting the build-up of foreign exchange reserves, now over $ 93 billion, as the country needs them for higher growth, executive director of the central bank, Usha Thorat, said here today.

She welcomed foreign direct and portfolio investment inflows, but said there was need for caution on short-term debt inflows, mainly NRI bank deposits.

“There is no limit on forex reserves. It is equal to our GDP. But in some countries, the reserves are 3-4 times GDP,” Thorat said at a CII conference on export financing.

An accretion of $613 million in the week ended November 7 took the country’s forex reserves to $93 billion. The swelling kitty has helped the country absorb the impact of $5.5 billion outflows on account of SBI’s Resurgent India Bonds without affecting the market. The country is in a position to prepay costly foreign loans worth $2.8 billion this fiscal; close to $3 billion in loans was returned to World Bank and ADB loans last year.

Conceding that high reserves have to be absorbed and sterilised (the monetary impact limited), Thorat said: “The RBI has taken measures to manage the excess liquidity in the system.”

But as the economy picks up and productive capacity grows, she said the higher forex reserves will be absorbed easily. The RBI’s policy allowing reserves to pile up comes amid signs of economic revival and a surge in imports. The central bank expects economy to grow by 6.5-7.0 per cent this financial year, helped by excellent monsoon and an industrial upturn.

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