The Hindu Business Line : Forex reserves fall by over $6 b due to IMD redemption

THE redemption of India Millennium Deposits (IMD) left its mark on the country's foreign exchange position for the final week of 2005, with reserves down by $6.844 billion after the central bank sold foreign exchange to SBI for redeeming IMDs.

In its Weekly Statistical Supplement, the Reserve Bank of India said that the total reserves for week ended December 30, 2005 touched $137.206 billion against $144.05 billion in the earlier week.

In a release issued on December 29, the RBI had said that it sold $7.079 billion to SBI for the redemption of IMD and this would be reflected in the level of foreign exchange reserves for that week.

For the week under consideration, foreign currency assets fell by $7.191 billion to touch $131.018 billion.

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

In this period, the euro had gained against the dollar and traded around levels of $1.850 against it.

The net FII inflow into domestic equity market was $193.4 million, according to figures from the SEBI.

According to the head of treasury at a private bank, the fall in reserves was predominantly due to IMD redemption.

"The euro, yen, and the sterling had strengthened that week. So, the fall in the forex reserves was mostly due to the sale of dollars for IMD redemptions," he said.

For the week under review, gold increased by $349 million to touch $5.274 billion. SDRs were unchanged at $5 million.

The country's reserve position in the IMF fell by $2 million to touch $909 million.

About the likely movement of the rupee next week, the bank official said that the rupee will probably weaken due to technical reasons.

"There are still lots of short positions in the dollar. The rupee movement was a function of how the dollar behaved against other major currencies. This week and the week before that, the dollar had been under pressure. But I feel that at some stage the link between the dollar and G-7 currencies will be broken."

Next week the rupee is likely to trade between 44.60 and 45, he added.