RBI pumps in $200 million to cool forwards
Our Banking Bureau
MUMBAI, January 9: The six-month (annualised) premia zoomed to 15 per cent, prompting Reserve Bank of India's (RBI's) aggressive intervention on Friday. The RBI conducted swaps of $200 million bringing the six-month forward premia down to 10.95 per cent -- below yesterday's close of 12.25 per cent.In a thin market, the spot rupee remained range-bound. After opening at 39.68/72, the rupee weakened to 39.74/76 during the day. It closed at 39.73.A combination of southeast Asia's currency crisis, Moody's review of India's rating for a possible downgrade and RBI's stricture to banks to maintain overnight limits triggered the spurt in forward rates. "The forward market behaved crazily today and if the Reserve Bank had not intervened to conduct swaps the six-month premia would have touched 18-20 per cent," a dealer in an European bank said. The rush by corporates to cover their near-term positions was so high that the one-month forward premia soared to touch 20 per cent before closing at 17 per cent. Cash
tom (deal to be effected on Monday) and cash spot also remained high. Cash tom touched a high of 6.5 paise, while cash spot went higher to 8.5 paise. "The RBI measure forcing banks to bring their nostro accounts into the 15 per cent investment ceiling is driving the cash spot and cash tom to such high level. Everyone in this segment is only paying, no one is receiving as no one wants to hold on to dollars," a dealer in a private sector bank said. To bring their nostro accounts within the 15 per cent overseal investment ceiling, banks are disposing off their dollar holdings for rupees. Dealers said the forward market was so thin a little demand for dollars from corporates was driving up rates. At one time, a leading British bank was quoting July premia at 220/290 paise. "There was uncertainty about the movement of the forwards and everyone was quoting at a very wide band," a dealer in a foreign bank said. Subsequently, the July premia touched 270/290 paise before the RBI stepped in and conducted swaps inspot over July to bring the forwards down to 210/220 paise. Some demand for dollars saw six months premia again rising to 230 paise. It closed at these levels.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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