Forex reserves decline $1.8 b as FIIs pull out funds

MUMBAI: The country���s foreign exchange (forex) reserves fell by $1.8 billion, partly due to repatriation of funds by foreign institutional investors (FIIs). Forex reserves fell below the $250 billion to $249.7 billion in the week ended February 13, down from $25.5 billion in the previous week.

According to Reserve Bank of India���s (RBI) weekly statistical supplement, the dip was largely on account of a fall in foreign currency assets ��� investments in bonds issued by foreign government and overseas bank deposits. The value of gold holdings, which also forms part of forex reserves, was unchanged at $8.88 billion.

Fiscal pressures are beginning to show in government���s overdraft account with RBI. The central bank���s loans to the government continued to be at a high level of Rs 15,392 crore. Although the government has managed to reduced last week���s outstanding amount of Rs 21,334 crore by Rs 5,842 crore, it has not been able to fully vacate the overdraft. The cost of the fiscal stimulus, coupled with a slowdown in tax revenues, has forced the Centre to borrow more. RBI is expected to vacate the outstandings, following the long-term bond issue in the coming weeks.

Bankers expect the additional borrowing announced by the government will result in the surplus liquidity in the system being absorbed. Currently, banks are flush with funds parking close to Rs 30,000 crore every day with RBI. Liquidity could come under further pressure if FIIs resume selling and send money out. The market is expecting another round of rate cuts by the central bank.