News: Indian forex reserves jump $5 billion on strong FII inflows

(BL 17/02/2007) Mumbai - The country's forex kitty rose by $5.031 billion in the week ended February 9, to touch $185.078 billion on strong FII inflows into the domestic equity and debt markets.

The forex reserves have risen for the fifth consecutive week. This is the highest accretion to the forex kitty in a single week in the recent past.

Foreign currency assets increased by $5.119 billion to $178.084 billion for the week ended February 9. During the week ended February 2, they had increased by $995 million to touch $180.047 billion.

RBI intervention

"There has been aggressive intervention by the RBI in the forex market as it would not like the rupee to appreciate sharply against the dollar," said Mr P. Mukherjee, Senior Vice-President, Treasury, UTI Bank.

According to forex dealers, the RBI had picked up around $3 billion in the last 10 days. "The RBI would not like to see the rupee breach the 44 levels. The home currency has been trading in the range of 44.10-44.20 levels for the past few days," said a treasury official at a private bank.

The stock markets saw around $555.9 million in FII inflows during the week ended February 9. "FII inflows have been consistently positive, even on days when the stock markets were relatively weak. The IPOs of Firstsource Solutions and Power Finance Corporation did attract attention in the domestic equities market," said Mr K. Harihar, Head-Treasury, Development Credit Bank.

"After the international ratings agency Standard and Poor's upgraded India's rating to investment grade, the country has been attracting more FII and FDI inflows," said Dr Rupa Rege Nitsure, Chief Economist, Bank of Baroda. "The rupee has been strengthening against the dollar. According to the real effective exchange rate, the rupee is overvalued by around 10 per cent eroding the competitiveness of exports. This was the reason behind RBI's intervention in the market, which resulted in a rupee inflow, which in turn raised liquidity, forcing a hike in CRR last week," she said.

Foreign currency assets as expressed in dollars include the effect of appreciation or depreciation in non-US currencies (euro, sterling and yen) held in reserves.

"The euro and sterling had strengthened against the dollar during that week, which added to the forex kitty," said Mr Ajay Mahajan, President-Financial Markets and Institutions, YES Bank. According to a forex dealer at a private bank, the euro had gained against the dollar from around $1.29 to around $1.350 during the week.

Gold reserves remained unchanged at $6.529 billion, while Special Drawing Rights decreased by $8 million to $2 million.