The Hindu Business Line : Forex reserves drop $56 m after 4-month surge

The forex reserves fell by $56 million to $118.572 billion for the week ended May 21, with the FIIs' exit from the bourses seen as the primary reason for the same.

This week's decline, said analysts, is due to the RBI selling greenbacks from the kitty in order to meet the demand from FIIs exiting equity and debt investments and corporates making import payments.

Said Mr P. Mukherjee, senior Vice-President, Treasury, UTI Bank, "This is the net figure but during the week there have been both outflows and inflows of the dollar. Let us not jump to any conclusions by looking at just one week's figure. We need to look at a longer time horizon to observe a trend." For over two years now, the forex kitty has been surging by leaps and bounds, at times additions being over a billion dollars in a single week. There has been heavy dollar inflow by way of FII monies, NRI remittances and corporates borrowing overseas.

This particular week includes `Bloody Monday', the day on which the stock markets plummeted by 800 points and RBI had offered liquidity support in the forex markets. FIIs exiting from equities were seen to be in a rush to convert their rupee funds into dollars and exit the country. During the week gone by FIIs were net sellers in the equity market to the extent of Rs 650 crore and in the debt market to the tune of Rs 139 crore. During the week the rupee had lost substantial ground against the US dollar, euro, pound and the yen. Analysts expect a net fall in the reserves figure in the coming week too since the RBI has been actively selling dollars.

According to the latest Weekly Statistical Supplement released by the RBI on Saturday, the foreign currency assets decreased by $74 million to touch $113.091 billion while special drawing rights and gold were steady at $2 million and $4.191 billion respectively. In the dollar-rupee market, the Indian currency depreciated by 15 paise in its value against the dollar through the week to end at 45.47/49 on Friday. The forwards remained in discount with the six months forward ending the week at - 0.55 per cent and the one-year contract closing at - 0.15 per cent.