Forex reserve up by leaps and bounds

The gross foreign exchange reserves stood at Rs 283.4 billion, a rise by 33.3 per cent in mid-May 2009 in comparison to mid-July 2008. In the same period last year, such reserves had risen by 19.3 per cent, said the report of Nepal Rastra Bank.
On the basis of the US dollar, gross foreign exchange reserves rose by 15.4 per cent to $3.6 billion in mid-May 2009. "Such reserves had gone up by 15.5 per cent in the same period of the previous year," the report based on ten months' data said.
The current level of reserves is adequate for financing merchandise imports over 12.4 months and merchandise and service imports over 10.1 months.
A major contributor to the increase in foreign reserve is remittance. "Under transfers, workers' remittances soared by 55.5 per cent in the review period compared to a growth of 35.5 per cent in the same period of the last fiscal year," the central bank said.
In the first ten months of the current fiscal year, NRB mopped up net liquidity of Rs 11.7 billion through open market operations. Of the total liquidity of Rs 20.7 billion mopped up in the review period, Rs 7.5 billion was mopped up from outright sale auctions and Rs 13.3 billion from reverse repo auctions.
"Despite a substantial injection of liquidity through foreign exchange intervention in the review period, a liquidity of Rs 9.0 billion has been injected through repo auctions in the seventh and eighth months of the review period on account of a shortfall in liquidity -- particularly due to a higher cash balance of the government with NRB and a higher expansion of currency in circulation in the review period," it said.
Net liquidity of Rs 4 billion was mopped up in the corresponding period of the previous year through open market operation including Rs 6.5 billion through outright sale auctions, Rs 6.6 billion through reverse repo auctions and Rs 9.0 billion through repo auctions.
In the review period, NRB injected net liquidity of Rs 121.5 billion by net purchase of $1.6 billion from commercial banks through foreign exchange intervention. "A net liquidity of Rs 76.6 billion had been injected through a net purchase of $1.2 billion from commercial banks in the corresponding period of the previous year," NRB added.
An elevated inflow of remittances necessitated such a substantial amount of intervention in the foreign exchange market in the review period.
NRB purchased Indian currency (IC) worth 59.9 billion through the sale of $1.3 billion in the review period. Indian currency of 48.3 billion had been purchased through the sale of $1.2 billion in the corresponding period a year ago. A depreciation of Nepali currency vis-à-vis the US dollar encouraged the import from India against the payment of Indian currency and, therefore, a higher amount of IC purchase was made as against a sale of the US dollar in the review period.