India's foreign exchange reserves dipped for a second straight week to $119.35 billion on June 11, as the dollar posted small gains overseas against other major currencies and foreign funds pared positions, analysts said.
Data released by the Reserve Bank of India on Saturday showed a drop of $333 million in the reserves from a week earlier, taking losses over two weeks to a marginal $475 million.
Analysts said the decline was marginal, considering reserves had been rising steadily through most of 2004 and were up about $18 billion this year.
"It is really no surprise as I had anyway expected a small drop of about $250 million," said Siddharth Mathur, strategist with JP Morgan Securities.
"This decline basically reflects some small foreign fund outflows and the dollar's marginal gains against other currencies during the week to June 11."
The dollar gained about 2.2 percent versus the euro, and more than one percent each against the yen and sterling during that week, buoyed by comments by US Federal Reserve officials who hinted the central bank could raise rates faster than expected. India's foreign exchange reserves are valued in terms of dollars. But they are also held in currencies such as the euro, sterling and yen. The central bank does not disclose the break-up of currencies.
Analysts said foreign capital flows had also been marginally negative during that week as political worries had weighed heavily on financial markets, spooking overseas fund investors.
Markets have been worried about the fate of the country's economic reforms since a leftist-backed coalition government rode to power in a surprise election win in mid-May.
Foreign funds, which had sold local assets for a record nearly $800 million in May after investing some $4 billion earlier in 2004, sold local shares and debt for a net $37 million in the week to June 11.
Analysts said foreign and local investors were waiting for the new federal government to present its maiden budget on July 8. Investors are hoping that a pro-reform budget will spur growth and attract foreign capital into the expanding economy.
The weak inflows have weighed on the rupee, which closed at its lowest since January 2 on Friday. The rupee has now weakened 1.53 percent against the dollar over seven straight sessions.
India's foreign exchange reserves, which are still Asia's sixth-largest pile, have risen sharply in recent years on account of strong trade and investment inflows into one of the world's fastest growing economies.