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Indian forex reserves rise on gold revaluation

India's foreign exchange reserves rose by $88 million in the week to June 1, reflecting possible revaluation of the central bank's gold holdings after last month's rally in gold prices, researchers said on Saturday. Foreign exchange reserves rose to $42.912 billion in the week ended June 1 from $42.824 billion at the end of the previous week, the Reserve Bank of India said in its weekly statistical supplement on Saturday.

But, among the components of the reserves, foreign exchange assets fell by $33 million during the week to $42.092 billion while the value of gold held rose to $2.816 billion from the previous week's $2.695 billion.

"The rise must be on account of the revaluation of the gold reserves," M R Madhavan, head of research at Bank of America, said.

"It reflects about 4.5 to 5 per cent rise in gold prices."

Gold spot prices rose to around $274 a troy ounce in mid-May, their highest levels this year, after the United States Federal Reserve cut interest rates for the fifth time in 2001, taking the Fed Funds rate to seven-year lows of four per cent.

Currency market traders said the decline in foreign currency assets with the RBI was also not surprising, and could be on account of their intervention through state-run banks to defend the rupee that week.

The rupee was under pressure from some import demand that week and, on June 1, it fell close to lifetime lows of 47.10 per dollar after international rating agency Fitch revised India's sovereign ratings outlook to negative from stable.

Fitch revised India's rating outlook citing worries about fiscal policy, privatisation and deterioration in the country's foreign investment climate.

The rupee has however been firming in recent sessions, despite the dollar's strength against other major currencies, and ended at 46.9550/9600 per dollar on Friday.

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