INR reserve drops to Rs 25.8bn

The Rupee reserve dropped by Rs 9.7bn in September compared to last year

The country’s international reserve position as of September this year was at USD 1.59bn, of which the Rupee reserve forms Rs 25.8bn, and convertible currency reserve USD 1.25bn, according to the monthly statistical bulletin of the Royal Monetary Authority (RMA).

The Rupee reserve in the beginning of the year was Rs 27bn, the highest in 2021. In the following month of March, it fell to Rs 25bn and dipped to Rs 17bn in July, which gradually picked up in August.

However, the Rupee reserve dropped by Rs 9.7bn in September compared to last year. It was the highest recorded drop in the third quarter of the year. The country’s highest Rupee stock was recorded in October last year with Rs 37.6bn.

On the convertible currency, reserves improved from USD 1.04bn in September last year to USD 1.25bn this year.

The total reserve is enough to finance 21.6 months of merchandise import, according to the RMA’s monthly statistical bulletin.

Convertible currency reserve alone is sufficient to finance 116.5 months of import. However, the Rupee reserve will meet 5.5 months of essential import.

Meanwhile, it is a Constitutional requirement that a minimum foreign currency reserve that is adequate to meet the cost of not less than one year’s essential import must be maintained.

Foreign currency reserve is crucial for Bhutan as Ngultrum is not a legal tender outside the borders. For an import-driven country, Rupee reserve is necessary as more than 80% of the country’s imports are from India.

However, the Rupee is not a convertible currency, thus the importance of foreign currency. In earlier years, when the country was hit with the Rupee shortage, the country had sold convertible currency to replenish the Rupee stock. Commercial borrowing in Rupee was also backed by the country’s convertible currency reserve, like a mortgage.

An arrangement with the Reserve Bank of India (RBI) has also been made where the RBI would facilitate the exchange of USD for INR and vice versa. The government in consultation with the Central Bank has also decided to set a threshold Rupee reserve of INR 10bn and convertible currency reserve of USD 757mn for all times.

Meanwhile, the country’s reserves are primarily built on foreign aid inflow, including the hydropower funds and proceeds from the export of electricity.

And as the country graduates from the category of the Least Developed Countries, it has been projected that aid from multilateral agencies will decline. To ensure minimum impact on the reserve from declining inflow of funds from aid and grants, the RMA has taken initiatives.

For instance, the RemitBhutan is expected to bring foreign currency earnings of the Non-Resident Bhutanese into the formal banking channel.

According to the report, the RMA alone has collected Rs 23.7bn as of September; Bank of Bhutan Limited (BOBL) with Rs 737mn, T Bank Limited reserved Rs 703.3mn, Bhutan National Bank Limited (BNBL) reserved Rs 338.6 mn, Druk PNB Limited with Rs 238.9mn, and Bhutan Development Bank Limited (BDBL) with Rs 2.5mn.

In addition, the RMA has reserved USD 1.16bn, BOBL has USD 22mn, BNBL has USD 8.8mn, T bank has USD 9.1mn, Druk PNB has USD 1.3mn, and DHI has USD 40.3mn.

Kinley Yonten from Thimphu