Appreciating dollar, Greece crisis dent India’s foreign reserves

Mumbai, July 4 (IANS) An appreciating dollar, coupled with international currency volatility due to Greece crisis, saw India’s foreign exchange reserves plunging by $237.5 million in the week ended June 26.

Data furnished by the Reserve Bank of India (RBI) in its weekly statistical supplement, showed that India’s foreign exchange fell after three weeks of rise. The reserves stood at $355.22 billion.

The reserves had grown by $1.17 billion and stood at $355.45 billion during the week ended June 19.

For the week (June 12) the foreign reserves had risen by $1.57 billion and stood at $354.28 billion. They had gained $239.4 million and stood at $352.71 billion in the week before (June 5).

Foreign exchange reserves have increased by close to $35-$40 billion since last year as overseas investors, buoyed by the hope of economic revival, poured in dollars in the local debt and equities markets.

“The reserves were dented due to depreciation of other major currencies against the dollar,” Anindya Banerjee, senior manager for currency derivatives with Kotak Securities told IANS.

Nearly 20-25 percent of the Indian reserves are made up of non-dollar currencies. The individual movements of these currencies against the dollar impacts the overall reserve value.

“The Reserve Bank is also buying dollars and is pretty active in the forward purchase markets since the last 18-23 months. The currency corrections due to the Greece crisis effected the reserve position vis-a-vis dollar purchases,” Banerjee said.

The RBI sells dollars, whenever the rupee crosses the Rs.64 mark and buys when it falls below Rs.63. Though at a very short range, experts believe that the RBI seems to be comfortable with the rupee ranging– anywhere between Rs.63-Rs.64.30 per dollar.

Rupee has shown exceptional resilience to the Greece crisis and not shown any major signs of volatility.

According to Banerjee, it is expected that the reserve might gain substantially in the coming weeks, if the RBI raises the buying limit for rupee denominated government bonds.

“The bonds were earlier pegged at Rs.47 to a dollar. Now the talks is to to peg it at Rs.64 per dollar. This will instantly add $6-7 billion in the bond value. Though the dollar buying limit of the bonds will remain the same at $30 billion,” Banerjee said.

Major triggers to look out for the forex markets will be the outcome of the Greece referendum which will be held on June 5, China’s stock market crash and the subsequent easing of the monetary policy there and the dip in international crude oil prices.

The international crude oil prices on June 2 fell from $59 per barrel in the futures market to below $57 per barre.

India is a major importer of crude oil, with over 70 percent of its demand met by imports. The crude oilÂ’s sharp fall follows the US data showing higher inventory rise.

During the week under review the foreign currency assets (FCAs) which constitutes the largest component of the forex reserves declined by $216.6 million and stood at $330.50 billion.

The country’s gold reserves were stagnant at $19.34 billion. The bullion has remained at these levels since the week ended May 1, when it grew by $4.5 billion.

The special drawing rights (SDRs) were down by $15.8 million to $4.06 billion. The country’s reserve position with the International Monetary Fund (IMF) slipped by $5.1 million to $1.31 billion.

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