The Hindu Business Line : Forex reserves up $1.9 b on inflows

BOOSTED by the gush of dollar investments into Indian equities and a weaker greenback overseas, the country's forex kitty was augmented by $1.901 billion in a single week.

In fact, the steady spate of dollar inflows streaming into the country over the past three weeks have contributed to an accretion of $7.5 billion to the forex reserves.

Analysts are of the view that the central bank has been steadily soaking up excess dollars from the market in order to stem a sudden and sharp appreciation in the rupee, which, in turn, is also reflected in the burgeoning reserves.

For the week-ended March 4, total reserves grew to $137.559 billion, as against $135.658 billion in the previous week, as per the Reserve Bank of India's latest statistics.

Foreign currency assets rose by $1.917 billion to touch $131.761 billion.

The increase in foreign currency assets, however, was offset by a $14-million decline in gold reserves, which fell to $4.376 billion and a $2 million dip in the reserve tranche position in the IMF, which came down to $1.417 billion, according to the Weekly Statistical Supplement (WSS) of the RBI. Special Drawing Rights remained unchanged at $5million.

Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of non-US currencies such as the euro, sterling and yen held in reserves, according to the WSS.

Strong dollar inflows swept the rupee up to close at 43.56, per dollar on Friday, March 11, sixteen paise stronger than its closing in the beginning of the week on Monday.

As per the SEBI data, total FII inflows for the week ended March 4 was $571.6 million.

Due to strong FII inflows, traders said the rupee was not likely to weaken and could remain range-bound between 43.55 and 43.65.

A head treasurer of a private bank said that the main reasons for the increase in foreign exchange reserves were strong FII inflows, aggressive intervention by the RBI and the revaluation of other currencies against the dollar.

"The central banks of other Asian countries like Korea and Taiwan too have said that they are feeling the heat of their local currencies appreciating against the dollar.

"The RBI is aggressively soaking up dollars. Although a weaker rupee helps exporters, we must remember that we are helping foreign institutional investors by giving them money on a platter.

"We are giving more rupees for a dollar," he said.

According to a dealer at a private bank, the dollar has been weakening continuously against international currencies and is expected to weaken further, based on the US trade data figures.

He said that the US fiscal deficit is expected to be huge.

The statement by the RBI Governor, Mr Y.V. Reddy, at the Fixed Income Money Market and Derivative Association of India conference on Friday, that the central bank needs to take a relook at its dollar assets, is perhaps an indication that the RBI may shift its foreign exchange reserves in favour of currencies other than the dollar, the dealer said.

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