"We want to keep the forex market stable. It is only incidental that in the process (of sterilisation), liquidity is pumped into the system," sources close to the central bank said.

In a strategic shift, the RBI has not been buying dollars from the market directly. Instead, it has been buying dollars through some of the public-sector banks, which is why its presence is not "felt". According to sources, the central bank has worked out "arrangements" at the dealer level and the banks have been selling the dollars to the RBI after buying it from the market on the same day.

"The same tactic was followed when the rupee took a dip and breached the 43 barrier last month when the BJP-led Government faced theconfidence motion. At that time, the RBI did not intervene directly and, instead, sold dollars through some of the state-run banks," a market source said.

The sterilisation process--buying of dollars and thereby releasing an equivalent amont of rupee into the system--is in conformity with the Reserve Bank governor Bimal Jalan's twin objectives of ensuring "adequate liquidity" and "stability" in the forex market.

The RBI has cut the cash reserve ratio (CRR) by one percentage point releasing about Rs 6,500 crore into the system since the announcement of the Union budget.

"The central bank will not hesitate to effect further a CRR cut if the situation demands. As of now, there is no immediate need (for CRR cut). The liquidity is tight at the shorter end of the market and the overnight call rates are ruling on the higher side. We are closely watching the markets," sources said.

The RBI policy of buying dollars from the market to stem possible rupee appreciation is likely to continue to maintain the exportcompetitiveness. "Ideally, the rupee should depreciate. But the sudden flow of FII money--which is a pan-Asian phenomenon now--has upset all calculations. The RBI may want to maintain the status quo till the new Government takes over," a forex dealer with a foreign bank said.

As a fallout of the RBI policy, the rupee has been hovering in the 42.72-74 range against the dollar and the six-month annualised forwards are soft-ranging between 5.3 per cent and 5.8 per cent. The dollar mopup from the market has pushed the foreign-currency assets from $29.56 billion in April first week to $30.02 billion in May first week. The total forex reserves (including gold and SDR) went up to Rs 32.94 billion on May 7.