FT - India cuts dollar holdings

Wednesday, May 04, 2005

After Russia's announcement to cut the share of US dollars in its foreign exchange reserves from 90 to 80 percent and stocking up on Euros instead five weeks ago, India is following suit according to a report in the Financial Times.
Fears of a weakening appetite for dollars among Asian central banks were re-ignited on Tuesday when India became the latest nation to talk of reserve diversification.
India is secretive about the composition of its reserves, which have ballooned by 13.5 billion dollars since January to a record 142.6 billion, the sixth largest in the world.
But S.S. Palanimanickam, the junior finance minister, said in a written reply to a question about New Delhi's exposure to the dollar: "Appropriate adjustments are made in the currency composition of foreign exchange reserves from time to time depending on various considerations...like benefits from diversification of currency risk."
The euro is an important currency for the Reserve Bank of India, he added in comments that will intensify speculation that New Delhi may be looking to reduce its exposure to the dollar.
India caused some jitters for the dollar earlier in the year when it approved plans to use its forex reserves as collateral to fund infrastructure investment, even though such spending has been limited to 2.3 billion dollars in the next 12 months.
Behind this veil of secrecy, India is believed to have started to switch into the euro and, to a lesser extent, sterling and yen.
The Bank for International Settlements said in March that India’s banking sector, including commercial banks as well as the RBI, held just 43 per cent of its deposits in dollars as of September 2004, compared to 68 per cent in September 2001.

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