Rupee tests new low amid fears of contagion spread
Our Banking Bureau
MUMBAI, Jan 13: The rupee touched an all-time of low of 39.94 against the dollar on Tuesday and would have dipped to 40, but for State Bank of India's (SBI's) huge sale of dollars, dealers said. In a thin market, gripped by nervousness, importers rushed to buy the greenback and exporters refused to part with it.At 39.94, there were only quotes and no deal was struck. The rupee closed the day at 39.87/89, losing eight paise over the previous day's close. The rupee has been losing ground steadily by about 8-10 paise a day in the last few days. The Reserve Bank of India (RBI), which kept away from the spot market, intervened in the forwards conducting swaps for July maturity. "The State Bank took the route of passive intervention -- selling dollars to banks which were approaching it for the greenback. It sold dollars at 39.87/89 for sometime and abruptly withdrew from the market," a dealer in a private bank said. The rupee lost ground the moment SBI stopped selling dollars, and deals were struck at
39.92. This prompted its reintervention in the spot market which strengthened the rupee to finally close at 39.87/89. Dealers attributed the general nervousness in the spot market to meltdown in the southeast Asian currencies. "Importers are rushing to buy dollars because they are not sure where the rupee will head because of the turmoil in the southeast Asian markets. "The situation is being further complicated by the fact that exporters are not selling dollars as they expect the rupee to cross the 40 barrier soon," a treasury head in a foreign bank said. With the market remaining thin owing to RBI strictures on banks' overnight limits and overseas investment ceilings, a slight demand for dollars is making the market to go haywire. Dealers said the demand for dollars were mostly met by State Bank of India. "If the Reserve Bank does not intervene tomorrow, the rupee could touch the 40-mark," a dealer in a foreign bank said. The market has dubbed the gradual weakening of the currency as
"soft-landing". "It would have touched 40 against the dollar but the State Bank came to its rescue," dealers said. State Bank reportedly sold dollars under instructions from the central bank. After opening at 39.80/85, the rupee lost ground steadily as corporates continued to cover for their exposures. "The central bank conducted swaps for small amounts which had a token effect on the forwards," a dealer in a private bank said. Six-month forwards (annualised) closed at 10.75 per cent -- slightly costlier than Monday's close of 10.20 per cent. One-month forwards remained costly with premia ruling at 18 per cent. Quotes in the far-forwards widened by an average 20 paise as there were very few players. "No one was willing to take a chance with far forwards," a dealer said. Forward premiums have been consistently on the rise for some time now with corporates rushing for cover, fearing a further fall in the rupee's value. The Reserve Bank is reportedly planning to open a swap window for trade deals in its
efforts to bring down forward premiums.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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