MUMBAI, July 14: The crash of gold prices in the international markets has made a minor dent in India's foreign exchange reserves which fell by $ 8 million for the week ended July 4.

The marginal fall has come after months of continous rise due to RBI's forex market operations which saw the reserves (including gold and SDRs) touching the $ 29-billion mark. In the last six months reserves went up from $ 23 billion to cross $ 29 billion on June 27.

The marginal decline in the forex reserves was due to the revaluation of gold prices. Gold prices on July 4 crashed to a historic 12-year low at $ 325 per ounce after the Australian Central Bank decided to sell 167 tonnes of the yellow metal. As a result, gold reserves which have been steady at $3.954 billion dipped by $ 30 million to touch $ 3.924 billion.

Foreign exchange assets, however, continued to grow and during the week ended July 4 it rose by $ 22 million to $ 25.40 billion. This is indicative of the fact that the RBI is still mopping up dollars in the forex market.

The RBI's periodic interventions in the spot and forward markets have had an impact on the money supply which went up to 16.8 per cent for the fortnight ended June 20 from 16.6 per cent registered in the previous fortnight.

The gold price crash in the international market has triggered a substantial dip in the RBI's exchange fluctuation reserve (EFR). The Indian central bank is set to register a dip in the FER in its 1996-97 (July-June) balance sheet following the slump in the price of the yellow metal.

"Taken into account the recent fall in international gold prices, the erosion in the Reserve Bank's exchange fluctuation reserve will be to the tune of over Rs 1000 crore. This is significant as the Reserve Bank had already booked a loss of over Rs 2,100 crore on account of the exchange risk on the entire corpus of $2.1 billion India Development Bonds in January-February this year," one senior RBI executive said.

Besides, the central bank will also have to bear the exchange risk on the FCNR(A) scheme.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.