And rupee hits the bottom

MUMBAI, June 23: The rupee continued its free fall against dollar and sunk below the 43 level at the inter-bank foreign exchange market here...

MUMBAI, June 23: The rupee continued its free fall against dollar and sunk below the 43 level at the inter-bank foreign exchange market here on Tuesday morning as the Reserve Bank of India kept away from the market following Government8217;s hands off policy. On Monday, Finance Minister Yashwant Sinha had ruled out artificial propping up of the currency.

However, by latenight, a chastened Sinha seemed to retracting his touch me not policy and said that the RBI would intervene to check the volatality in the rupee.

8220;We are not in favour of volatality. I have repeatedly said we are for orderly condition and if we feel undue volatality is taking place, RBI will take whatever steps needed,8221; Sinha said reacting to the rupee plunging to a record low against the dollar.

Dealers said Monday8217;s statement of finance minister had put pressure on the currency and bankers and corporates took this signal as further depreciation of the rupee.

On Tuesday, the rupee opened at 42.85/90 and immediately weakened to 42.95. Atthis point, panic-driven import covering saw the rupee fall past the 43 mark. Dealers said that deals were done at 43.05 and there were quotes at 43.08, but no deals were struck. After the first hour of trading, the rupee stabilised and clawed back to 42.89/91. Most dealings were conducted at these levels, but the rupee marginally weakened to close at 42.90/92.

With this, the rupee has shed nearly seven per cent of its value after being lashed by a wave of negative news ever since India carried out its nuclear tests on May 13. The rupee has depreciated by 2.8 per cent in June itself. Dealers said that the rupee might cross the 43 level and close at 43.05/10 on Wednesday if the RBI does not intervene or the State Bank of India starts selling dollars.

8220;The sentiment is clearly weak8230; There are very little dollar inflows on the horizon,8221; a foreign bank chief dealer said, adding, 8220;it will weaken more as we approach the month-end when dollar demand is usually more.8221;

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The rupee lost nearly 55 paise onMonday as markets turned nervous after international credit rater Moody8217;s on Friday announced a two-notch demotion of India8217;s credit rating to speculative grade. Dealers said the rupee would remain weak against the forward dollar and premiums would track the spot rates.

8220;Premiums may not go up very much over this as there will not be paying interest at high levels8230;.It will also not come down as exporters will not receive premiums,8221; a private bank dealer said. 8220;The rupee should bottom out at 43,8221; said an economist at Standard Chartered Bank. According to NS Paramasivam, head forex Essar Group, either the government or the RBI have to indicate a level for the rupee otherwise the Indian currency is likely to fall further.

The forex market was surprised by the Finance Minister8217;s statement. 8220;Sinha8217;s statement has accelerated the fall,8221; said a dealer. Sinha had said that 8220;we should stop linking national honour with the rupee8217;s value.8221; Sinha had further said that he was aware of the implications of afalling rupee but 8220;the exchange rate of the rupee should be determined by the forces of demand and supply.8221;