Forex reserves and high liquidity in banking system

The continuing inflows from foreign institutional investors and unutilised foreign direct investments offer an opportunity for those supervising the deployment of forex reserves.
THE UPSURGE in forex reserves from $42.28 billion in 2000-01 to $95.37 billion during the week ended November 21 this year has been a source of concern for the monetary authorities. Out of the addition of $53.09 billion in a little over two and half years, the share of non-debt receipts through FII inflows, foreign direct investments and current account surpluses in 2001-02 and 2002-03 has been quite sizable. If the value of gold holdings around $3.92 billion is adjusted, the proportion of debt receipts to total foreign exchange assets is not more than 50 per cent, allowing for revaluation of reserves on account of a depreciating dollar against other major currencies. Indeed, there may be a deficit on current account for April-September this year, as the trade deficit has almost doubled to $9.27 billion in April-October from $4.46 billion in the same period in 2002.