Forex reserves rise to near-all-time high; rupee falls.

​KOLKATA/MUMBAI: The nation's foreign exchange reserves rose for the sixth consecutive week to a near-all-time high, as the central bank accumulated dollars to prevent volatility in the forex market after foreign funds continued to pour money into Indian assets.

Forex reserves rose $643 million for the week to July 11, taking the total to $317.037 billion, the Reserve Bank of India said. The reserves are just about $4 billion less than the record high of $321 billion.

Building reserves is important for any central bank as they offer a buffer against future volatility. For instance, RBI intervened in the market by selling dollars to support the rupee when the local currency went on a tailspin last year after foreign investors pulled out their money. Foreign-currency assets, a major contributor to reserves, rose $648.7 million to $290.222 billion in the week to July 11, the central bank said.

Foreign-currency assets, expressed in dollar terms, capture the effect of appreciation or depreciation of non-US currencies, such as the euro, pound and yen kept in reserves. Gold reserves with the RBI remained static at $20.635 billion. Meanwhile, the rupee fell to its weakest in a month against the dollar, tracking lower emerging market assets after the downing of a Malaysian airlines jet at the Ukraine-Russia border sent investors scurrying to defensive assets.

The rupee fell 0.7% for the week, posting its biggest weekly loss since mid-June when emerging markets had reeled on worries about the prospect of civil war in Iraq. Global factors are likely to be the key drivers for the rupee next week, given the prospect of tensions between Russia and the West over the downed Malaysian commercial jet. That could offset signs of improving economic fundamentals at home.

"The improving momentum in the manufacturing sector should be supportive of stronger earnings in the corporate sector and equity portfolio flows by implication," Sanjay Mathur, an economist at RBS said in a note to clients. "At the same time, the strength of exports should allay concerns about rupee overvaluation."

The partially convertible rupee ended at 60.28/29 per dollar, from its Thursday close of 60.18/19. The rupee fell as low as 60.46 to the dollar at one point, a level last seen on June 18. But the currency pared losses as the Sensex rose for a fourth straight session on Friday after better-than-expected earnings from TCS sparked a rally in IT stocks.

Source : economictimes.indiatimes.com