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Import cover
Why is it in the news ?
- The foreign exchange reserves risen to $429.84 billion as at end June 2019 from $412.47 billion as at end March 2019.
- The import cover rose to 10 months compared with 9.6 months, the Reserve Bank of India (RBI).
Concepts
- Forex Reserves:
(1) Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary policy.
(2) The forex reserve is also kept as a cushion against any potential balanced of payment related crisis.
(3) India’s foreign exchange reserves comprises of (i) Foreign currency assets (FCA), (ii) Gold, (iii) Special Drawing Rights (SDRs) and (iv) Reserve tranche position (RTP) in the International Monetary Fund.
- Import Cover:
(1) Import cover is a measure of the number of months of imports that can be covered with foreign exchange reserves available with the central bank of the country.
(2) It is an important indicator of the stability of a currency.
(3) Eight to ten months of import cover is essential for the stability of a currency.
Source
The Hindu.