MUMBAI, Nov 18: The foreign exchange market witnessed a turmoil with the rupee plunging below the crucial Rs 37-mark to hit the 21-month low of Rs 37.41 against the dollar on Tuesday. The rupee crash dampened the stock markets also and the Sensex fell by 59 points on the Bombay Stock Exchange.

The rupee plunged by 1.5 per cent against the dollar the rupee is pegged to the US currency as it fell steeply from the opening level of Rs 36.90 to Rs 37.52 in frenzied activity. Concerned over the steep fall, the Reserve Bank of India which regulates the currency's movements sold dollars to stem the volatility. Even though the rupee recovered marginally to Rs 37.30, it lost ground again and depreciated to close at Rs 37.41/37.45 level.

As the rupee fell steeply, the RBI intervened -- albeit late. The central bank sold around $200-250 million to prop up the rupee. However, this was not enough to bring it back to the previous day's level of Rs 36.86. Seeing the sustained fall, RBI Governor C Rangarajan came out with a statement, saying that the adjustment that has already taken place in the value of the rupee is adequate. ``While the RBI has been ensuring that there are orderly conditions in the market, the rupee has been adjusting to the changing circumstances. We believe that the adjustment that has already taken place in the value of the rupee is adequate,'' he said.

Rangarajan warned that the RBI would not hesitate to intervene to prevent any overshooting. ``In view of the fundamentals, there is no ground for a further weakening of the rupee,'' he said. The rupee slide took its toll on the stock markets as foreign institutional investors (FIIs) unloaded shares on a broad front. ``FIIs will not take positions when the currency is showing high volatility,'' said an FII official.

With this fall, since the beginning of the year (January two), the rupee has depreciated by 4.32 per cent from Rs 35.85 to Rs 37.41 per dollar. Forex dealers said the central bank had pumped in nearly $ one billion (over Rs 3,600 crore) to prop up the rupee against the dollar.

Forex dealers attributed the record fall in the rupee value to heavy import covering, cancellation of external commercial borrowings (ECB) in view of changed scenario in the world markets. Market sources said the political uncertainty at the Centre is a key contributing factor to the `sudden' fall of the rupee. Says Ajay Srinivasan of ITC-Threadneedle: ``There is no good news to prop up the market. Rupee is falling, government is on the verge of a collapse and economy is slowing down, stock markets would obviously collapse,'' he said.

While exporters hope the currency will fall further in the next few days, panic-stricken importers and corporates with large exposures to external debt are rushing for cover. According to J Moses Harding, head of forex at IndusInd Bank, a complete lack of liquidity and depth led to speculators taking over the forex market.

Federation of Indian Export Organisations (FIEO) president Ramu Deora, said the RBI should leave the foreign exchange market to demand-supply forces and let the greenback move up further. Deora expects the rupee-dollar to reach the Rs 38 level soon, if RBI stays out of the market. ``I do see any reason for the rupee to depreciate as of today, but it happened. It is anybody's guess as to where the rupee will finally settle...the current levels may be tested again. Dollar inflows have been weak for various reason... you have the Gail GDR issue and lower ECBs. A lot of market demand has been taken care of though,'' said Jamal Macklai, a leading forex expert.

Said PH Ramaswamy of Credit Lyonnais, ``I see the rupee in the Rs 37.10-37.50 per dollar band now... there may be a one time blip to Rs 38 per dollar, but that is it. I would like to believe that the correction may be over.'

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.