Return on foreign currency assets dips to 2.1%

The return on foreign currency assets and gold after amounting for depreciation decreased to 2.1 per cent in June-July 2003-04 from 3.1 per cent in fiscal 2002-03.

According to a report on foreign currency reserves for the period up to September 2004, the decline has been mainly owing to lower money market rates in major countries and a fall in prices of securities owing to rising long-term yields.

Compared with March 2004, foreign currency assets deployed as securities fell from $35.02 billion to $27.62 billion in September 2004.

On the other hand, deposits with other central banks and Bank for International Settlement went up from $45.87 billion to $54.25 billion, followed by an increase to $32.2 billion in deposits with foreign commercial banks as against $26.54 billion.

After being designated as a creditor under its Financial Transaction Plan ( FTP) in February 2003, the total quantum of India's contribution under FTP was SDR398 million at end September 2004.

The report has accounted for money-based and debt-based indicators in calculating the adequacy of reserves in addition to the presence practice of trade-based indicators.

As per trade-based indicator, the adequacy of reserves that rose to 17 months of import cover in March 2004 fell to 13.8 months in end-September.

The ratio of volatile capital inflows (defined to include cumulative portfolio inflows and short term debt) to reserves declined from 36 per cent at end March 2004 to 35.7 per cent as at end September 2004.

The report has attributed surge in oil prices in the international market as the main reason for the current account deficit of $3.3 billion during April-September 2004.