Tags:
Journalism of Courage
MUMBAI, February 20: The forward premium on dollar shot up on Friday as importers rushed to cover on finance secretary Montek Singh Ahluwalia’s statement that a 10 per cent cap had been fixed on the Reserve Bank of India’s forward liabilities. The spot rupee also remained under pressure and weakened to Rs 38.93 against the dollar.
The six-month forward premium rose by 150 basis points to close at 15.75 per cent (annualised) – up from 14.25 per cent on Thursday. The one-year forward premium rose to 14.20 per cent (annualised) from yesterday’s close of 13.60. Even as forwards firmed up, the RBI hastened to officially clarify that "there is no cap fixed by the government or RBI for its forward liabilities. But as a matter of prudential measures, the RBI policy has been to keep a close watch on its operations."
Ahluwalia made the statement at a Ficci seminar in Mumbai on Thursday. "Forward transactions of the Reserve Bank are currently within 10 per cent of the total foreign exchange reserves," Ahluwalia toldthe seminar.
RBI deputy governor YV Reddy said today in Mumbai: "We have been very cautious by generally limiting such aggregate outstanding (forward) liabilities and rarely does it exceed 10 per cent of reserves. Of course, there is no rigid rule. We observe great prudence in these matters while exercising flexibility." Reddy was speaking at a CII seminar on "Emerging Scenario in Foreign Currency Management".
The spot rupee today continued to remain under pressure and crossed the crucial 38.90 mark to close at 38.93/94 on sustained corporate demand to meet month end commitments.
Sustained buying from the State Bank of India saw the rupee weaken to 38.95. Opening at 38.89/90 — marginally weaker than Thursday’s close — the Indian unit lost ground as the SBI went on a buying spree. The rupee dipped in early morning trades to cross the 38.90 mark and fell further to trade at 38.94/95. "Deals were conducted at 38.95 also," a dealer in a private sector bank confirmed.
Although some selling did take place- which saw the Indian unit strengthening to 38.89 – the rupee once again slipped on sustained demand from importers to close at 38.93/94. "Today’s demand for dollars was purely driven by commercial needs and most trades were merchant related," a chief dealer in a private bank said.
"Forwards weakened as importers rushed to cover on seeing the sustained pressure on the rupee," dealers said.
