The Hindu Business Line : NRI remittances push forex reserves up $666 m

ON the back of NRI remittances and the appreciation in the basket of currencies held by the Reserve Bank, the forex reserves of the country have risen by $666 million to touch $79.225 billion for the week ended May 16.

In the previous week, the accretion to the reserves had been close to a billion at $961 million capping the reserves at $78.559 billion.

"There has been heavy NRI remittances taking use of the arbitrage opportunity and also consistent appreciation of the euro throughout this month which has led to the increase in the reserves," said a forex dealer in a public sector bank.

However, the Reserve Bank last week released statistics to indicate that there is hardly any money coming into the country on account of arbitrage.

According to the RBI's statistics, the increase has been in the foreign currency assets, which rose by $666 million to touch $75.830 billion while the gold reserves were steady at $3.389 billion and the special drawing rights at $6 million.

In the currency markets, there is a growing feeling both amongst bankers and corporates that the central bank may not permit the domestic currency to appreciate any further. The rupee ended the week on Friday at 46.8950/9050 almost unchanged from Thursday's levels against the dollar.

The week began with a 14 paise jump of the rupee registering a two-year high against the greenback. Bunched up supplies of the dollar and its diminishing shimmer worldwide triggered the sudden vault. However, the rupee continues to depreciate against the other major currency, euro.

"Despite the rupee touching an intra-day high of 46.75 against the dollar on Wednesday, the RBI has guarded the domestic currency from reaching such levels after that. On both Thursday and Friday the central bank mopped up dollar liquidity of close to $200 million per day to contain the surge of the rupee," said a dealer in a private sector bank.

Whether the rupee will appreciate further in the week ahead hinges on the central bank's view and activity.

However, the rupee would appreciate if left to itself due to the consistent weakening of the dollar, which is expected to reverse only on the revival of the US economy, said a forex analyst.

In the dollar forward market, there has been some inching up of premia due to profit booking and some demand for forwards from importers. Six months closed higher on Friday at 1.02 per cent (0.60 per cent) and the one-year at 1.05 per cent (0.61 per cent). Forward premia touched historic lows on Tuesday with the six months at 0.35 per cent and looked very close to going into discount. "Some importers taking a view that the RBI may not permit further appreciation in the Indian currency are beginning to cover their foreign exchange exposures," said a dealer in a private bank.

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