MUMBAI, July 15: The Reserve Bank of India intervened in the forex market on Tuesday as the rupee inched up to 35.6850 - its eight-month high. The central bank mopped up $50 million in the last hour of trading after the State Bank of India (SBI) aggressively sold dollars in late-session deals.

This is the third consecutive day the apex bank intervened to stop the rupee from gaining ground.

Estimates put the Reserve Bank mop-up at $150 million in the past three days to send the rupee below 35.70.

Opening the day steady between 35.7050/71.50, the rupee hardened to 35.6850 on increased dollar supplies. "The dollar quoted at Rs 35.6850 but most of the trades were conducted at Rs 35.6950," a dealer said. The Reserve Bank promptly intervened to stop the rupee's upward march. It later closed lower at 35.70/71.The Reserve Bank (RBI) has adopted a passive stance during the conduct of its open market operations (OMO) in the money market. This could trigger a surge in money supply since the apex bank is mopping up dollars from the foreign exchange markets to keep the rupee from appreciating, senior bankers said.

Explaining the rationale behind the central bank's passive stance in conducting OMO, a RBI source said the increase in money supply at 15-15.5 per cent in the first half of the current fiscal is not a cause for concern.

This, because the apex bank is confident that the demand for credit will pick up soon. Money supply grew to 16.8 per cent for the fortnight ended June 20, up from 16.6 in the previous one.

"The central bank wants bank credit to take off. That is why it has put unattractive and non-tradable securities on the sale window," a money market dealer said.

The Reserve Bank holds attractive securities like the 12.59-per cent 2004 and the 13.05-per cent 2007 (following the conversion of ad hocs worth Rs 10,000 crore into special securities). The gilts will be sold out in no time if the RBI puts them on sale.

"The central bank, however, does not want to do this since it wants banks to lend rather than increase their investment portfolio," an analyst with a leading foreign-based broking house said. The RBI recently cut the bank rate to 10 per cent for boosting credit offtake, which has remained sluggish this fiscal.

It put out a clutch of old-dated securities like the 6.50-per cent gilt maturing in 2000, 7.50-per cent gilt maturing in 2010, 8-per cent gilt maturing in 2011 and the 9-per cent paper maturing in 2013 on the sale window. "No body buys these securities. They are hardly tradable as most of these securities are in the permanent category of the public sector securities portfolio," a dealer said.Of these, only the 6.50-per cent paper witnessed deals at Rs 89.35, while the RBI was selling it at Rs 89.40.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.