The Hindu Business Line : Forex reserves up $984 m on more inflows

PROPELLED by substantial trade flows and NRI remittances, the country's forex reserves have surged by nearly $1 billion, according to the latest figures released by the Reserve Bank of India.

For the week ended March 28, reserves gained $984 million and touched $74.805 billion, compared to $73.821 billion in the previous week.

Forex traders and analysts ascribed the rise in reserves in part to the revaluation in the RBI's basket of currencies, but largely to the usual year-end phenomenon of a heavy dollar liquidity overhang in the market.

"With the financial year drawing to a close, most corporates and banks which had gone in for external commercial borrowings, etc., wanted to bring their monies in before March 31. Banks were also liquidating their sizable dollar positions as they have to show rupee funds in their balance sheets," according to Mr Manbir S. Bawa, Senior Forex Analyst, Mecklai Financials.

According to an forex analyst with a foreign bank, reserves accretion tend to accelerate towards the end of the financial year on account of various government `draw-downs' on the loan lines of multilateral agencies.

He explained, "India has lots of lines of credit from multilateral agencies like the World Bank, ADB, IMF, etc., where they have been promised huge dollar loans for deployment in various sectors like infrastructure etc.

"These facilities have to be used to some extent by the end of the fiscal year. The credit limit has to be utilised. So the reserves could have gone up also because the Government has tapped these loan lines," he said.

Meanwhile, the market continues to be flushed with the greenbacks and as a result the domestic currency has been gaining strength. The rupee closed the week strong on Friday at 47.40 per dollar, gaining by almost 20 paise in a fortnight.

Forex analysts feel that the rupee is still undervalued in terms of the dollar as per the real effective exchange rate. This coupled with the fact that the greenback is currently weak against most international currency majors is leading to the appreciation in the rupee.

"If the RBI had not stepped in and mopped up substantial amounts of dollars from time to time the currency could easily have gone up to 47.20 levels last week," said a forex dealer with a leading private sector bank.

Dealers expect the rupee to range between 47.30 and 47.45 against the dollar over the next week.

According to the weekly statistical supplement of the RBI, foreign currency assets gained by $984 million to touch $71.076 billion. Gold reserves remained at $3.725 billion and special drawing rights (SDRs) remained at $4 million.

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