Mumbai, July 23: The rupee bounced back to close at 43.51/52 against the dollar on Monday, buoyed by the Reserve Bank of India (RBI) governor Bimal Jalan's statement that the central bank was prepared to intervene directly or sell dollars through the State Bank of India to augment dollar supplies in the market.The RBI stepped in to prop up the rupee after it dipped to an all-time closing low at the weekend, triggered by reports of the US and G-8 countries deciding to hold back non-essential loans to the country following the announcement of its nuclear doctrine.
Jalan's statement, made minutes before the forex market opened for trading on Monday, saw the rupee open at 43.4950/5150, from its Friday close of 43.5650/5750. Forward premiums quoted softer, with the six-month annualised forward cover closing at 4.78 per cent (5 per cent).
"Arrangements have been made by the Reserve Bank, to meet fully or partially, the foreign exchange requirements for the import of crude oil by Indian Oil Corporation," theRBI said in its statement, adding, "it was also prepared to meet the country's debt service obligations directly."
The Government's debt-service obligation is pegged at around $3 billion till next June (the RBI's year-ending). The outstanding International Monetary Fund (IMF) payment obligations are meagre at SDR 96 ($120 million), which are to be cleared by June 2000, sources said.
The RBI statement outlined measures to "reduce the temporary demand-supply gaps that may emerge in the forex markets due to the impact of any uncertainty or speculation in the next few weeks." These measures include:
Arrangements to meet fully or partially the foreign exchange requirements for import of crude oil by the Indian Oil Corporation;
Arrangements to meet the Government debt-service payments directly, if necessary; and
Readiness to intervene directly or sell dollars through the SBI to augment supplies in the market, in case there is a temporary demand-supply gap.
All RBItransactions will be at the market rate, the statement said. Jalan also pointed out that the country's forex reserves were comfortable and more than adequate to meet any genuine requirements of foreign exchange. The forex reserves were at $33.2 billion as on August 21, 1999. Compared with a year ago, gross reserves, despite Kargil, are higher by $6.2 billion. In net terms, after taking into account forward liabilities, reserves are higher by nearly $6.6 billion over the same time last year, it said.
Jalan's statement held the rupee in a narrow band between 43.4950 and 43.51 for most of the day. Demand for dollars from state-run entities saw the rupee weaken to close at 43.49/50 on Thursday, and still lower at 43.5650/5750 on Friday.
Taken by surprise, dealers said the central bank had stepped in following the rupee's fall to an all-time closing low on Friday with elections round the corner. "The next few weeks will be crucial for the rupee. With all eyes on the elections, any rumour or an innocuouscomment (from any quarter of the globe) can play havoc in the forex market. It is clear that the RBI does not want to take any chances," a dealer said.
"It is clear that Bimal Jalan is keen to have a rocksteady rupee. However, the rupee's current level is not sustainable," says Kanji Pitamber & Co's Gautam Ashra.
INSIGHT
Keeping control
The central bank's intervention may be due to several reasons. It could be that it has an interim target for the rupee, or it could be that it knows that there are large transactions due which will affect the market or that, with the election so close, it wants the rupee to be clearly under control. In any case, the clear signal helps the market. Also, with fresh talk of a Chinese devaluation, there are additional reasons for keeping the rupee firmly under control.
Manas Chakravarty
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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