The Hindu Business Line : FII inflows, export earnings push forex reserves up $706 m

THE forex reserves of the country increased by $706 million for the week ended October 31, 2003 to touch $92.598 billion up from $91.892 billion in the previous week. The accretion in the previous week had been to the extent of $577 million.

The dollar inflows were heavy and constituted mainly of the steady FII inflows and exporters ushering in the receivables in this week and their absorption by the Reserve Bank has added to the country's reserves, said the treasury head of a private sector bank.

According to the RBI's latest statistics, the foreign currency assets increased by $705 million to $88.674 billion while gold reserves increased by $1 million to $3.920 billion and the special drawing rights item remained steady at $4 million.

In the foreign exchange market the domestic currency appreciated by a mere four paise against the dollar to end the week at 45.26/2650 amid strong support by the central bank.

The Credit Policy was unveiled during the week but it did not trigger much activity in the forex markets.

The policy has suggested that banks ensure the foreign currency loans extended to corporates over and above $10 million be covered against exchange rate risk.

This seems to have kicked up some activity in the forwards market albeit in small quantum.

The six months forward and the one-year forward gained close to 20 basis points during the week to close on Friday at 0.71 per cent and 0.73 per cent respectively.

The Reserve Bank has been concerned in recent times as most importers and foreign currency borrowers have unhedged positions in the foreign exchange market betting on an appreciating rupee.

A strengthening domestic currency will mean that the importer/foreign currency borrower will have to pay lesser amount of rupees when the payments are due.

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FII inflows, export earnings push forex reserves up $706 m