forex

Foreign exchange reserves dropped for the seventh time this calendar year as the US dollar showed some signs of revival against major currencies overseas.

Weakening inflows due to the beginning of the Christmas holiday season also led to a drop in reserves.

Dealers attributed the drop to the thinning foreign fund inflows and change in the valuations of currencies in the reserves.

"There are two things. First is that FII flows have turned negative. The other is that currencies like the euro and the pound that have depreciated against the dollar have pulled the value of reserves down," said a dealer at a European bank.

FIIs have pulled out more than Rs 4,000 crore from Indian stock markets this week, making inflows turn negative for the second month in succession and for only the third time this year.

The drop is interesting not only because it's only the seventh one in 2007, but also because the year has been a phenomenal one in forex reserves addition, with as much as $97.43 billion or 56 per cent added to reserves.

The reserves have risen largely as India has recorded huge inflows this year, forcing the RBI to intervene heavily in the forex market to curb the rupee, which has risen 12 per cent this year.

However, forex-watchers are not too worried about the slower inflows as foreign investors are still queuing up for a pie of the India growth story.

"Though FII flows have turned negative, we are still getting inflows through qualified institutional placements (QIP) everyday. These reserves don't signify anything but the rupee may drop in the short term if the dollar continues to again abroad," said a dealer with a US bank.

The dollar has gained against major peers abroad on hope that the US Federal Reserve will not cut rates from here as the latest data from the US shows that inflationary pressures remain.

The US Fed has cut its benchmark target funds rate three times since September to make money cheaper as top international banks struggle to overcome the global credit crunch.