Forex kitty swells $4.12 b, touches $219 b

The country�s forex kitty swelled by an additional $4.12 billion during the week ended July 13, 2007, taking the total reserves to $218.956 billion. While currency assets accounted for a value of $211.703 billion, the balance represented reserves with International Monetary Fund and gold holdings of the Reserve Bank of India.
The rise in exchange reserves during the week is a recent high, the last one being in February this year when the forex reserves went up by $5.119 billion to $178.084 billion on February 9, 2007.

Market participants feel that the RBI has been aggressively buying dollars to maintain the rupee at 40.35 levels. Talking about the dollar-rupee parity, Mr Ajay Mahajan, Group President, Financial Markets, Institutions and Investment Management, Yes Bank, said, �The rupee-dollar parity is where it is now because of RBI�s aggressive intervention in the forex market.� He felt that the apex bank will continue to intervene in the market. He said �the rupee will be fairly well supported.�
High reserves
The euro and sterling have strengthened this week against the dollar contributing to the strong forex kitty when measured in dollar terms, feel dealers. �The strong inflows coupled with the revaluation of other currencies like euro and pound has contributed to the high reserves,� said Mr P. Mukherjee, Senior Vice-President, Treasury, UTI Bank.
Traders attributed the strong RBI intervention as prompted by the robust dollar supplies from foreign direct investments and portfolio flows in that week. Interestingly enough, the week in question did not see any mega primary offering as was the case in the previous week, which saw ICICI Bank issue attracting support from qualified overseas investors in a major way, said a banking analyst.
In a measure that perhaps signalled determined intervention by the RBI in the face of strong flows, its �reference rate� (usually a signal to the market participants as to where RBI�s preferences lay) pegged the rupee�s exchange rate to the dollar, a shade lower during that week, having moved it down from Rs 40.41 on Monday, July 9, to Rs 40.47 on July 13.
However, market transactions during the week pushed the rupee to a slightly higher level of Rs 40.42 to a dollar on Friday from Rs 40.43, the rate prevailing on Monday.
Meanwhile, in a report released on Thursday on the management of foreign exchange reserves in the country, the RBI said that reserves were 2.6 times the size of volatile capital flows (the sum of cumulative portfolio investments and outstanding short term debt) as at the end of March 2007.
The figure represents an improvement over the performance as of March 2006 when such reserves were only 2.3 times the sum of outstanding portfolio investments and short-term debt.
The RBI has traditionally placed the foreign exchange reserves principally as deposits with the IMF, foreign central banks and commercial banks, and investments in government and other securities. As of March 2007, it had nearly 48 per cent of foreign currency assets as deposits with the Bank for International Settlements and the IMF, the RBI release said. The rest was invested in deposits with foreign commercial banks (23 per cent) and tradable securities (31 per cent).
It earned on an average, during 2006-07, 3.9 per cent on its investments, up from 3.1 per cent in the previous year.