The recent appreciation of the rupee in the foreign exchange market without any intervention by the Central Bank (CB) confirms higher foreign exchange inflows into the country, the CB said this week.
It said these foreign exchange inflows are expected to continue into the future in view of the positive outlook brought about by the end to the three decades of conflict. The statement said the Bank is now in a better position to build up its official reserves to a more comfortable level.
Meanwhile the trade deficit contracted for the third consecutive month in March 2009 as imports continued to ease faster than exports.
This was helped by private remittances (mainly from migrant workers) showing a record US$278 million in March, the highest ever in any month of the year, the CB statement added.
Garment export earnings also rose. While textiles and garments exports to the European Union grew by 18.4 % in March, those to the US fell by 4.5 %. The trade deficit narrowed by 17.6 % in March 2009, year-on-year, to $383 million. Private remittances reached $774 million in the first quarter against $787 million in the corresponding period of 2008. Remittances during the first quarter were $129 million (about 20 %) in excess of the trade deficit.
The Bank said expenditure on imports fell by a comparatively high rate of 11.8 % to % 1,009 million in March in view of the reduced demand for imports of consumer and intermediate goods.
Among the major food commodity imports, expenditure on rice, wheat and milk fell in March while spending on sugar rose by 22.4 %.
The gross official reserves, with and without Asian Clearing Union (ACU) funds, recorded $1,373 million and $1,272 million respectively, by end March.
These include deposits of $200 million placed with two domestic banks which were intended to facilitate payments of petroleum bills without exerting undue pressure in the foreign exchange market. Based on the previous 12 month average imports ($1,085 million per month), these reserve values are equivalent to finance 1.3 and 1.2 months of imports, respectively.