The central bank announced a three-point strategy to reduce temporary demand-supply gaps that may emerge in the forex market due to uncertainty or speculation in the next few weeks. RBI said arrangements have been made to meet fully or partially forex requirements for import of crude oil by Indian Oil Corporation (IOC), government debt service payments directly as necessary and in case of temporary demand-supply gap, intervene directly or sell dollars through State Bank of India (SBI) in order to augment supply.

The RBI, in a statement here, said all the transactions undertaken by the central bank would be at the market rate. The rupee started stronger on Monday after the RBI issued a statement saying it was prepared to intervene directly or sell dollarsthrough the State Bank of India in order to augment dollar supply in the market.

Dealers said there would be no immediate impact of the change on the RBI sale list since the new security was priced at the current market price. The RBI said it had taken the measures to reduce the temporary demand-supply gaps that could emerge in the foreign exchange markets due to the impact of uncertainty or speculation in the next few weeks.

It said it would meet the government debt service payments directly as necessary. The rupee on Monday opened at 43.49/52 per dollar against the previous and dealers reported early deals upto 43.50.

The apex bank, however, noted that the country's forex reserves are comfortable and more than adequate to meet any genuine requirements of foreign exchange. The total foreign exchange reserves were US $ 33.2 billion as on August 21, 1999. At the current level, reserves are higher by US $ 700 million during the current financial year despite the impact of Kargil developments, RBI said,adding compared with a year ago, gross reserves are higher by US $ 6.2 billion.

In net terms, after taking into account forward liabilities, reserves are higher by nearly US $ 6.6 billion over the same time last year, RBI said. "Banks are sitting long dollars. A major sell-off now would mean hurting themselves. They will probably wait to see how corporates behave. Chances are the rupee may firm before the end of the day," a foreign bank dealer said. "Probably they see some major demand supply gaps which the market does not know about. Otherwise, these statements are most unexpected," the chief dealer at a foreign bank said about the RBI statement.

Dealers said the central bank had probably stepped in following the rupee's fall to an all-time closing low on Friday and the sharp drop in the country's foreign exchange reserves in the week to August 13.