Rupee rise brings down value of forex reserves by 8%

Dollar-denominated reserves went up $29.49 billion between mid-March and end-July 2007. The $1 billion equals Rs 4,000 crore rule of thumb puts the rupee equivalent at Rs 120,000 crore. Because the rise of the rupee per ''dollar'' of the dollar-denominated basket caused a Rs 70,000-crore drop in the rupee value of total reserves. An idea that has been doing the rounds for many months is that lending surplus forex to corporates could increase yields on reserves, while help check their runaway growth.But the idea has not progressed beyond the level of wishful thinking.The irony is that the rise in the rupee reduced the value (rather than the level) of our reserves, even as it brought down the liabilities of the corporates that had gone in for ECBs.Though repeated efforts to get a response from the RBI met with no success, two points are worth noting. First, the rupee rose vis-a-vis all major currencies between March 16 and July 27; vis-a-vis the dollar by 9.49 per cent, the euro by 5.67 per cent, the yen by 14.38 per cent, the pound sterling by 4.53 per cent, the Swiss franc by 8.94 per cent, the Chinese yuan by 7.26 per cent and the Singapore dollar by 8.79 per cent.Second, as of now forex losses (or for that matter gains on ECBs) are merely notional.Actual losses (or gains) will be registered only when the bills are due.