Forex reserves hit 3-year low of $280 billion.

NEW DELHI: The recent pullout by FIIs has begun to show on India's foreign exchange reserves, which fell almost $4.5 billion (or Rs 28,500 crore) in the first week of the month to a three-year low of $280 billion on July 5. The data, released by RBI on Friday evening, coincided with a meeting convened by chief economic advisor Raghuram Rajan, where various fund raising options, including a sovereign bond issue, were suggested by bankers.

"They (banks have given) us a lot of suggestions, including sovereign bond issue. All options are on the table and we will examine as and when the need comes," Rajan told reporters after the meeting. Foreign exchange reserves are at their lowest level since the week-ended July 16, 2010. They are sufficient to cover imports of a little over six months, prompting the government to discuss various options with foreign banks. FIIs have pulled out of equities as well as debt and are net sellers to the tune of nearly $1.5 billion so far in July, data on Sebi website showed. During the first week of July, they withdrew $577 million from the debt and equity markets and have been net buyers only once this month. For the government, which was contemplating setting up a sovereign wealth fund to maximize returns, the wheel has turned a full circle. From a peak of over $320 billion in February 2011, reserves are down by $40 billion.

Overseas investors are moving out of emerging markets such as India to the US, where there are signs of revival and expectation of the Federal Reserve withdrawing the stimulus that had resulted in surplus cash flowing to other countries. The pullout has also impacted the rupee which hit a lifetime low of 61.21 against the dollar on Monday. It closed at 59.57 on Friday against the currency and gained for the first time in nine weeks on RBI intervention.

Source : timesofindia.indiatimes.com