Date:02/12/2006 URL: http://www.thehindubusinessline.com/2006/12/02/stories/2006120205770100.htm

Back Forex reserves jump by $5.9 b in November

Our Bureau

`Sharp rise mainly due to revaluation of foreign currencies'

Investment flow
FII inflows into the equity markets during the week were around $621.6 million, according to SEBI figures.

Mumbai , Dec. 1

The country's foreign exchange reserves rose sharply by $2.427 billion to $172.782 billion, for the week ended November 24. This is the sixth week in a row forex reserves have risen and the second consecutive week when they have gone up by over $2 billion.

In the previous week, forex reserves moved up by $2.071 billion to touch $170.355 billion.

In November, forex reserves increased by about $5.9 billion.

The hefty climb in forex reserves was mainly due to revaluation of foreign currencies, said Mr V. Rajagopal, Chief Dealer, Forex, Kotak Mahindra Bank. Dealers believe the RBI, during the week, prompted nationalised banks to visit the market to pick up dollars. FII inflows into the equity markets during the week were around $621.6 million, according to SEBI figures.

According to the Weekly Statistical Supplement of the RBI, foreign currency assets increased by $2.424 billion to touch $166.061 billion for the week under review. Foreign currency assets expressed in US dollar terms include the effect of appreciation or depreciation of non-US currencies (such as euro, sterling and yen) held in reserves.

Gold reserves and SDRs remained unchanged at $6.068 billion and $1 million, respectively. India's reserve position in the IMF increased by $3 million to touch $652 million. The Rupee gained by seven paise to touch 44.66 today on strong FII inflows. Dealers said the rupee was expected to touch 44.50 next week.

For the RBI, it is testing times. If the RBI does not buy dollar surpluses, the rupee will appreciate, making exports costly. In getting government banks to buy dollars, excess rupees enter the financial system at a time when inflation numbers are climbing. That, in turn, could further push up prices and interest rates. For the week ended November 18, inflation stood at 5.45 per cent. There is the hope that inflation could ease in the next two weeks with government dropping prices of petroleum products.

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