Forex reserves fall, third week running

MUMBAI, MAY 13: Foreign exchange Forex reserves of the country have declined for the third consecutive week with the reserves falling fu...

MUMBAI, MAY 13: Foreign exchange Forex reserves of the country have declined for the third consecutive week with the reserves falling further by 243 million to 37,732 million in the week ended May 5, 2000 as compared to the previous week.

Forex dealers expect the reserves to fall further following huge outflows through the foreign institutional investment route. FIIs were major sellers in the stock market last week. On February 10, FIIs pulled out Rs 165 crore from the country and on February 11, another Rs 155 crore was taken out.

In the week ending April 28, the forex reserves fell by 247 million to 37,975 million over the previous week. In the reporting week, the decline in reserves was on account of foreign currency assets falling by 164 million to 34,829 million and gold reserves coming down by 79 million to 2,895 million, the Reserve Bank of India said in its weekly statistical supplement here today.

The latest fall in the rupee was also fuelled by slowing dollar inflows from foreign investors in Indian stock markets. 8220;If you look at the numbers for the past few months, the supply side for the dollar has really been from the foreign institutional investors. That is drying up now leading to an imbalance in demand and supply and that8217;s what pressuring the rupee right now,8221; dealers said. quot;The stock market weakness is beginning to have a bearing on the currency8230; the drought is a worry. Besides, Asian currencies are weaker,quot; said a dealer.

The rupee plummetted by a whopping 40 paise to hit an all-time low of 44.05/07 against the US dollar last Wednesday. In fact, as there was no good news to support the Indian currency, dealers say it was bound to weaken. The country is currently tackling a drought in five states. Stock markets have been weak amid concerns about the valuation of technology stocks, while inflation has been inching up. The wholesale prices inflation rose to 6.1 per cent in the week ended April 22 from 5.55 per cent in the previous week.

Forex reserves had shot up to 38 billion two weeks ago following massive inflow of FII investments. If the rupee shows further weakness, chances are that the RBI will use the forex reserves to keep up the currency. 8220;The central bank will allow the rupee to depreciate to some extent. But it will not allow the rupee to crash. Other Asian currencies are also showing weakness,8221; said a dealer.

On the other hand, foreign direct investment FDI has also not picked up in a big way. However, actual inflow of FDI as a percentage of approvals has improved in the current year so far, with inflows touching 93.12 per cent of the total investment approved. During January-March, actual inflow of FDI has been to the tune of 992.4 million compared to 1.07 billion approved, according to latest figures available.

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Industry ministry officials attribute the delay in inflow compared to approvals to predominance of infrastructure projects, which take a much longer period for fruition. Projects in infrastructure sectors like power have taken a much longer time for financial closure due to poor financial health of state electricity boards. In fact, three of the eight quot;fast trackquot; power projects cleared by the government as early as 1994 are yet to achieve financial closure.

Total FDI flow into the country between January 1991 and March 2000 was 20.19 billion against total approvals worth 60.76 billion, which works out to a poor 33.23 per cent. Inflow-approval rate has been languishing in the range of 20-30 per cent for most of early and mid 1990s but started improving in the last couple of years. From a paltry 29.92 per cent in 1997, the inflow to approval rate increased to 43.29 per cent in 1998 and 59.46 per cent in 1999.