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Foreign exchange reserves drop nearly $8 bn

Posted by Yogesh on Saturday, 11 October, 2008

MUMBAI: Foreign exchange reserves have dropped $7.87 bn during the week ended Oct 3, on account of market interventions by the central bank to sta
bilise the rupee and heavy selling by foreign funds.

The reserves, which include foreign currency assets, and gold, stood at $283.94 bn as on that date, as per the latest data with the Reserve Bank of India (RBI).

The fresh data comes against the backdrop of leading industry chambers asking the government to set up a $7-$8 bn fund with reserve money available as foreign exchange to invest in Indian securities and debt markets.

“This fund will ultimately make a profit as Indian asset prices are likely to increase in the longer term,” the Confederation of Indian Industry (CII) said in a statement.

“This will also have the benefit of creating a floor for asset prices and prevent further depreciation in the rupee.”

Since the beginning of the current fiscal, foreign exchange reserves are down as much as $25.78 bn taking into account the actual position and the account the effect of appreciation or depreciation of non-US currencies like Euro, Pound-Sterling and Yen, held in reserves.

One of the main reasons for the depletion can be attributed to the net sales in equity markets by foreign funds, which sold equity worth $883 mn during the four days of trading for the week ended on Friday.

The net sales by foreign institutional investors (FIIs) amounted to $932.8 mn during the current month and $10.05 bn during the year, says the more recent data available with the Securities and Exchange Board of India (SEBI).

There were 1,530 FIIs registered with the watchdog.

The net cumulative investments by foreign funds now stand at $56.28 bn, based on the reports submitted to the markets watchdog by the custodians till Friday. Source The Economic Times

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