Foreign Currency Assets Slide $548m

Foreign currency assets (FCA) registered a decline of $548 million during the week ending February 14, 1997, on account of redemption of the India Development Bonds.

Bonds worth around $1.65 billion were redeemed on February 14.

Accordingly, foreign currency assets slipped to $19.320 billion as against $19.868 billion a week back.

A foreign bank treasury official said, The Reserve Bank's active presence in the swap market in a big way kept the reserves from eroding. The central bank's market participation is in line with policy intentions, given the broad objectives of lowering interest rates in the economy and fostering higher economic growth. Special drawing rights (SDRs) during the period under review came down to $11 million on February 14, as against $28 million on February 7. The decline in SDRs is a meagre $17 million.

However, a private bank forex dealer said, The RBI drawing on the SDRs indicates that the government has made repayments to the International Monetary Fund during the week.

Meanwhile, the net foreign currency assets of the Reserve Bank were more or less steady at Rs 85,988 crore on February 14, as against Rs 85,897 crore a week ago.

Ad hoc treasury bills surged ahead to Rs 4,145 crore on February 7 as against a paltry Rs 25 crore on January 31.

This shows that the apex bank's active efforts to stem fiscal indiscipline do not seem to yielded results.

Bank treasury heads point out that as a result of consistent monitisation of the budget, an increased money supply in the banking segment is ensued.

This is evident from the fact that inter-bank call rates are moving to lower levels.

Also, the easing of liquidity is apparent from the fact that the currency in circulation during the week has also gone up by Rs 3,495 crore:

It increased to Rs 1,36,439 crore on February 7, as against Rs 1,32,944 crore on January 31.

One of the factors attributed to the surge in ad hocs is that the banking segment's investment portfolio of 91-day treasury bills dropped to Rs 3,499 crore on February 7, as against Rs 5,411 crore on January 31, 1997. But nationalised bank treasury officials observe that the increase in ad hocs is due to the government's continued reliance on the apex bank for fiscalexcesses.

This is indicated from the fact that the Reserve Bank of India