Forex kitty shrinks $600mn on Greek woes.

MUMBAI: A slump in the value of euro against the US dollar due to sovereign credit crisis in Greece led to a $600-million shave-off of India’s foreign exchange reserves last week and the government borrowed from the Reserve Bank of India to meets its expenses.

The nation’s forex reserves dipped $613 million in the week ended April 23 due to revaluation of non-dollar assets. The reserves are at $279.5 billion. Foreign currency assets comprising dollars, British pounds and euro, among others, dipped $564 million during the week.

Special drawing rights, or SDRs — the reserve currency with the International Monetary Fund (IMF) — and the reserve capital with the IMF fell $38million and $11 million respectively.

The dip in foreign currency assets during the week is largely on account weakening of the euro against the dollar, said a treasury official at a public sector bank.

The government’s borrowing for the week from the RBI rose since revenue flows are moderate during this period. It borrowed Rs 30,970 crore from the RBI to meet its daily revenue mismatches during the week. The total for the year so far rose to Rs 31,349 crore, RBI’s weekly data showed.

“Since revenue flows do not pick up during this time of the year, the government tends to borrow from the central bank to meet its revenue expenses,” said an official with a securities firm requesting anonymity.

State governments borrowed Rs 362 crore.

These short term borrowings are known as Ways and Means Advances, or WMA, a facility under which governments borrow from the RBI to meet their daily revenue mismatches.

While borrowings within the limit is at the prevailing repo rate, anything above the limit is at 2 percentage points higher than the repo rate. It is common for the governments to resort to such borrowings at the beginning of a fiscal until revenue flows gain momentum.

Source : The Economic Times