India's forex reserves to face $256 billion overseas debt challenge in next 12 months
India's enormous foreign exchange reserves faces its biggest test in the next 12 months as a record $256 billion of total overseas debt comes up for repayment amid a possible flight of capital due to monetary tightening by the Federal Reserves.
External debt worth $256 billion matures over the next 12 months, according to the September data released by the finance ministry. This is about 43 per cent of the September external debt outstanding at $596 billion.
While the reserves still top $600 billion there could be short term pressures on the currency as the RBI is likely to temper its interventions rather than defend the currency.
The recent US consumer price inflation at 7 per cent at 39 year high, the Fed might be swifter in hiking rates than earlier anticipated that could result in higher pull out of dollars from emerging markets including India. "The expectation of a rate increase by the Fed and other advanced economies is likely to accentuate capital outflow, and this is likely to put pressure on the exchange rate, current account deficit and prices" said M Govinda Rao, chief economic advisor at Brickwork Ratings.