The Hindu Business Line : Forex reserves: FII investment trend `will determine future'

IT is now official. The country's forex reserves soared by $1.090 billion, for the week ended December 19, 2003, to finally cross the much-awaited $100-billion mark. The forex kitty is now fortified at a formidable $100.049 billion, as per the latest RBI statistics.

Last week, the Finance Minister had confirmed that reserves had crossed $100 billion.

While the strong reserves reflect investor confidence and other positive indicators for the economy, analysts are of the view that future accretion to the reserves will be largely dependent on how the FIIs' (foreign institutional investors) investment trend in the domestic markets takes shape after the second week of January.

"At the end of the second week of January, the holiday season would be over internationally. Then it remains to be seen how the FIIs allocate investments for India in the New Year," said an analyst.

The rupee closed at 45.56 per dollar on Friday. The domestic currency has seen over a 5 per cent appreciation this year, against the greenback. Analysts contend that the balance between FII flows and PSU banks sterilising dollar liquidity will determine not only the value of the rupee in the near term, but may also influence importers to hedge in the far forwards.

"State-run banks have been actively mopping up excess dollars from the market. If they lend support to the dollar, and keep the rupee at 45.50, that is, if they do not allow rupee to appreciate beyond 45.50 in January, importers will start covering even their long-term obligations," said another analyst.

Meanwhile, according to the weekly statistical supplement of the RBI, foreign currency assets of the country rose by $1.090 billion to $96.008 billion. Gold reserves remained steady at $4.038 billion while special drawing rights were steady at $3 million.

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