Forex reserves fall by 114 mn despite IMD issue

State Bank of India, India8217;s largest commercial bank, raised at least 5.2 billion from the IMD deposit offer aimed at expatriate Indians. The offer ran from October 21 to November 6. 8220;The entire IMD money may not have reached India. The inflow may pick up in the coming weeks8230; but there are reports that some money has gone out of the country only to come back as IMD deposits in view of the higher interest rate structure of the scheme. If this is true, IMD may prove costly for the government,8221; said a banker.

The IMD dollar inflows failed to arrest the downtrend in the currency. The rupee, convertible only on the current account, ended weak on Friday at 46.730/735 per dollar, almost down by 10 paise in the last five days. It has lost nearly seven per cent against the dollar since the start of the year.

Bankers say the central RBI encouraged SBI to launch the scheme to boost the country8217;s foreign exchange reserves which have been falling since the rupee came under pressure from high global oil prices and a slowdown in foreign capital inflows.

The foreign exchange reserves are down 9.39 per cent from April peak of 38.341 billion, largely reflecting the central bank8217;s efforts to augment dollar supplies to prop up the rupee.

Dealers expect global oil prices, the euro8217;s movements and foreign fund activity in the stock markets will remain the keys to the rupee8217;s direction over a longer time-frame. The central bank said variations in reserves also reflected changes in the value of the rupee against other currencies such as the euro, sterling and yen which are also part of the reserves basket.

But the extent of the adjustment was not known since the composition of the reserves is not revealed.

Sustained dollar demand from corporates and importers stepped up the pressure on the rupee, despite favourable news of the good response to SBI8217;s IMD scheme, bankers said. While the deposit plan8217;s dollar inflows will keep the rupee stable in the short-term, more immediate dollar demand from importers was weakening the Indian currency, dealers said, suggesting thatthe IMD inflows had already been factored by the market.

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