Rupee touches 10-month high
The rupee hit a 10-month peak against the dollar on Friday as banks bought the local currency to meet their mandated cash reserve needs for the year-end following a recent directive from the Reserve Bank of India (RBI). The rupee rose for the seventh consecutive day to 44.2175 per dollar in early morning trade on Friday, the highest since Feb. 10. It has gained 2% this year against the dollar. Banks have been selling dollars in order to meet their CRR requirements with the RBI amid a severe liquidity crunch that has sent the call money rate to a six-year high. Banks have also borrowed funds from the RBI to meet daily reserve requirements for the past two weeks after the central bank raised the amount banks need to set aside as cash from deposits. The RBI on Dec. 8 hiked the Cash Reserve Requirement (CRR) by 50 basis points to 5.50%. Banks borrowed Rs 361bn from the central bank on Dec. 28 to meet daily cash reserve needs, a record high, signaling a severe cash crunch in the banking system.
External debt rises in Q2
At the end of September 2006, India's external debt stood at US$136.5bn compared to US$132.2bn at the end of June 2006, the Government said. The rise in external debt outstanding in the second quarter was essentially brought about by a rise in external commercial borrowings, NRI deposits and short term debt. Long-term debt outstanding at US$125.9bn showed an increase of US$2.8bn over the earlier quarter. Under long-term debt, multilateral debt rose by US$493mn, which was partly offset by a drop in bilateral credits by US$ 100mn. Export credit outstanding rose by US$165mn. At US$32.46bn, commercial borrowings were higher by US$1.36bn over the preceding quarter. While Rupee debt remained broadly at the same level as at the end of the first quarter, NRI deposits rose by US$912mn to US$36.56bn. Short-term debt increased by 16.2% over the quarter to US$10.58bn on account of a rise in trade credits.
NRI deposits accounted for 26.8% of the total debt as at September 30, 2006, followed by multilateral debt at 24.6% and commercial borrowings at 23.8%. The share of bilateral debt was 11.5%. Export credit and Rupee debt accounted for 4.1% and 1.4%, respectively. The share of short-term debt was 7.8%. India’s foreign currency reserves stood at US$165.3bn at the end of September 2006. Foreign currency assets were US$158.3bn as on September 30, 2006 providing a cover of around 116% to total external debt. US dollar continued to be the major currency of denomination in India’s external debt portfolio. The share of US dollar in the country's external debt increased further from 45.4% at the end of March 2006 to 46.7% as at September 30, 2006.