Finance minister Yashwant Sinha attributed the rupee's fall to a temporarydemand-supply mismatch. "I think it is a temporary mismatch between supplyand demand," Sinha told reporters in New Delhi. Sinha said it was the apexbank's responsibility to monitor the market. "It is the responsibility ofthe RBI to keep a day-to-day watch on the market and I hope RBI willadequately respond to the situation," he said.

The RBI did not issue any statement. Neither did it try to support theIndian currency through market intervention. The rupee lost 37 paise or 0.85per cent during the day making it the largest single-day fall since August1998. Dealers said exporters held back on bringing dollars into the market,hoping the rupee will fall further. The rupee ended at 44.04/06 per dollar,off its all-time intra-day low of 44.08 and beyond the previous low of 43.70hit in August 1998. Stray deals after the official close of the forex marketwere reported at 44.08/15. It had closed at 43.6775/6825 on Tuesday. Thesix-month annualised premium ended at 2.40 per cent compared with Tuesday's2.15 per cent.

Dealers expect the rupee to rule in the 44-44.20 range on Friday, though anyfirmness will depend on the exporters' sentiment. The market is likely toremain closed on Thursday on account of the all India strike call given bybank trade unions. "The negative sentiment caved in once the rupee broke the43.70 barrier. Some foreign banks had gone short on the dollar in themorning hoping the RBI would allow the rupee to remain steady. Once theyrealised that this was not happening, there was panic in the market. Duringthe last hours of trading, corporates came in with heavy dollar demandforcing banks to cover positions," eMecklai senior vice-president KN Deysaid.

"The first hour of trading on Friday will be crucial. If the RBI staysalways from the market, the rupee may well go up to 43.25 levels," he added."The RBI was looking at a right opportunity for adjusting the rupee to therise in inflation and the slippage of major currencies against the dollarrecently, which has had its effect on the rupee's real exchange rate," Essartreasurer NS Paramsivan said. The rupee opened at 43.6775/6825 per dollar,unchanged from Tuesday's close. The prime factor that drove the currencydown was persistant buying by the State Bank of India (SBI) at variouslevels during the day. The SBI, which is regarded as a "proxy buyer" for thecentral bank, was buying throughout the day. Dealers said lack of any signalfrom RBI was interpreted by the market as the Reserve Bank wanting the rupeeto depreciate. This sentiment triggered a panic reaction among players, whojumped into the market with sudden demand for dollars.

The sudden fall assumes significance in the context of the extreme volatiltywitnessed in the equity market. Foreign funds have been steady buyers ofequities despite the persistent stock market weakness, but dealers said therecent reversals in flows had led to some concern, especially with foreigndirect investment (FDI) flows still a trickle and plans of domesticcompanies to raise capital overseas spooked by the recent crash intechnology stocks worldwide.