The Hindu Business Line : Forex reserves accretion trickles down; it’s only $656 m in April-June quarter

The cause
Both overseas borrowings and portfolio inflows are drying up
RBI has been selling dollars in the spot market
Fluctuations in currency exchange rate

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Mumbai, July 4 Accretion to forex reserves appears to be grinding to a halt.

The net accretion to the forex reserves in the quarter ended June has been a mere $656 million. Compared to this, the preceding quarter had an accretion of $31 billion.

With falling stock markets and the ECB restriction, inflow of funds was expected to be lower. However, the past three months have seen just a negligible addition to the reserves.

The reasons for the slowdown include drying up of inflows – both overseas borrowings and portfolio inflows; selling of dollars by the RBI in the spot market as well as to oil companies in exchange for oil bonds; and fluctuation in the currency exchange rate, said banking analysts.

According to RBI data, in April-May, Indian corporates raised about $2.43 billion, while in March itself the amount raised was $4.47 billion.

Foreign institutional investors have been net sellers in the calendar year, so far, according to data from SEBI. The net amount pulled out of the equity market in the three-month period from January to March was $2.83 billion and in April-June it was higher at $3.48 billion.

Mr Dharmakirti Joshi, Director and Principal Economist, Crisil, said, “The accretion to forex reserves is lower, but it is on expected lines. Some parts of FII inflows are drying up. RBI selling dollars or the drawdown on reserves is also one reason for the reserves falling. The valuation changes also affect reserves. The forex reserves are valued in dollars, though they comprise several currencies. So when the exchange rates change, the reserves also get depleted. But how much this will impact the reserves, only the RBI will know.”

According to a senior treasury official with a public sector bank, for a major part of June, much of the activity in the spot market has been due to RBI’s efforts in trying to keep the rupee below 43, but it has not succeeded.

“The forex reserves definitely decreased because the RBI was seen selling dollars aggressively,” he said.

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