Mumbai, July 22: The Reserve Bank of India has devised a way of keeping the rupee from appreciating against the dollar without resorting to market intervention. It has started entering into direct off-market deals with corporates.

The apex bank, which has of late been regularly intervening in the forex market to stop the rupee from gaining strength against the greenback, entered into a number of direct deals with a few banks on Tuesday. The banks sold dollars on behalf of their corporate clients.

These deals assume significant as the Reserve Bank was conspicuous by its absence in the market today.

Confirming the development, forex dealers said that some banks have entered into deals with the central bank on behalf of their blue-chip corporates. "A few banks have struck off-market deals with the Reserve Bank on behalf of their corporate clients. Although the exact pricing is not known, the deals are likely to have been struck in the range of Rs 35.70/7050," a dealer at a private bank said.

In an off-market deal, banks -- on behalf of their corporate clients -- instead of entering the market, strike deals directly with the Reserve Bank and sell dollars. "The central bank sends feelers to the bankers of the corporates when it comes to know of strong forex inflows either through GDRs or external borrowings or even export earnings. Thus, through the `backdoor' intervention route, the central bank ensures that the rupee does not gain much against the dollar," dealers said.

According some estimates, the RBI struck off-market deals to the tune of $ 25-30 million today. The bank, which has been entering the forex market to mop up $ 50-60 million on a daily basis to stop the rupee from appreciating, was not seen in the market on Tuesday as the rupee moved in a very narrow range of Rs 35.70/7050.

Dealers explained that direct off-market deals will keep the pressure away from the greenback at a time when exports are sluggish and there is not much of a demand for imports. "Corporates are also increasingly raising money abroad through ECBs as a result of which the dollar inflows will continue to increase. This, coupled with strong FII inflows, is leading to a strong rupee, which is hurting exporters," a treasury chief said.

During the last fortnight, the central bank has intervened whenever the rupee crossed the Rs 35.70-mark on strong dollar inflows. This open market intervention has not been fully sterilised, which is leading to a spurt in money supply. Money supply for the first quarter was hovering in the range of 16.8 per cent (on an annualised basis) as compared to the targeted 15-15.5 per cent band set by the Reserve Bank.

The rupee remained stable yesterday but forwards continued their downward slide. Six-month forwards (annualised) crossed the 3.50 per cent psychological barrier to close at 3.47 per cent. On Monday, six-month forwards had closed at 3.52 per cent.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.