The Hindu Business Line : Forex reserves surge $1.8 b on $ inflows, revaluation gains

PROPELLED by a torrent of dollar inflows and a significant revaluation in the central bank's basket of currencies, the country's forex reserves surged by over a billion dollars for the fourth consecutive week.

As per the latest RBI statistics, total reserves surged by $1.825 billion to a new high of $126.923 billion for the week ended November 26, 2004.

Analysts ascribed revaluation gains following the substantial appreciation of the euro and pound sterling against the dollar as the main contributor to the accretion in reserves.

During the week ended November 26, foreign currency assets rose $1.812 billion to $121.208 billion. Foreign currency assets expressed in dollar terms include the effect of appreciation and depreciation of non-US currencies (such as euro, sterling and yen), according to the Weekly Statistical Supplement of RBI.

"The all-time high touched by the reserves can be attributed to appreciation of euro and pound sterling against the dollar and weighty foreign investment inflows into the Indian equity market," said Mr R.V.S. Sridhar, Vice-President and Head, Forex, UTI Bank.

External commercial borrowings and overseas bond issuances by corporates have also contributed to the fund inflows, he added.

FIIs had invested a total of $387.40 million in the Indian debt and equity markets as on the week ended November 26, according to the Securities and Exchange Board of India data.

Analysts are of the view, that while heavy foreign inflows are usually seen in January, the current rush of funds investments by FIIs is a move to pre-empt the market. "They are buying in the market now so that when the demand rises in January they can book profits by selling at better prices", said an analyst.

In fact, the boom in the domestic equity markets, with the Sensex clocking an all-time high of 6,328.43 on December 2, will be reflected by an even bigger surge in reserves accretion in the next week's reserves data, he said.

Aided by good dollar flows, the domestic currency ended on a strong note at 44.12/14 on Friday after hitting a low of 44.81 during the week.

The rupee is expected to remain strong in the coming week given the continuous flow of dollars and the weak trend of the greenback overseas.

Meanwhile, according to the W.S.S., India's reserve position in the International Monetary Fund rose $13 million to $1.359 billion.