Forex reserves cross $33 bn mark

“The rise in forex inflow was due to the heavy investments by FIIs. The forex level will rise further in the coming weeks,” said a banker. Besides, foreign direct investment (FDI) is also rising with many foreign companies bringing in funds for approved projects.

Foreign funds have already brought in $ 300 million to India in May. This is on top of an investment of $ 225 million in April. If all goes well, market pundits expect another $ 100 million to come in the rest May. Thiswill take the total net FII investment in the country very near to the magical $ 10 billion level. A section of the market feels that this is only a reversal of the clock back to the pre-Pokharan level. After the nuclear explosion, FIIs had pulled out over $ 630 million from India.

Sensex has already gone up by 800 points in May so far. With the index having already touched 4,100, experienced bulls are not ruling out the 4,500 level in the near future.

Meanwhile, the RBI has started taking steps to smoothen the impact of the rise in forex reserves. The RBI has embarked on a massive sterilisation exercise in the forex market by buying out excess dollars and pumping in rupee into the system. The objective behind the move is to stem any possible appreciation of the Indian currency, triggered by the oversupply of the greenback.

The central bank has not been buying dollars from the market directly. Instead, it has been buying dollars through some of the public sector banks which is why its presence is not"felt". According to sources, the central bank has worked out "arrangements" at the dealer level and the banks have been selling the dollars to the RBI after buying it from the market on the same day.

The sterilisation process — buying of dollars and thereby releasing an equivalent amount of rupee into the system — is in conformity with the Reserve Bank governor Bimal Jalan’s twin-objective of ensuring "adequate liquidity" and "stability" in the forex market. The RBI policy of buying dollars from the market to stem the possible appreciation of the rupee is likely to continue to maintain the export competitiveness. "Ideally, the rupee should depreciate. But the sudden flow of FII money — which is a pan-Asian phenomenon now — has upset all calculations. The RBI may want to maintain the status quo till the new government takes over," a forex dealer with a foreign bank said.

As a fallout of the RBI policy, the rupee has been hovering in the 42.72-74 range against the dollar and the six-month annualisedforwards are soft ranging between 5.3 per cent and 5.8 per cent.