Indian rupee slides to 21-mth low against dollar

MUMBAI, APR 19: The Indian rupee touched its lowest level in nearly 21 months on Wednesday, pulled down by traders feared by the State Ban...

MUMBAI, APR 19: The Indian rupee touched its lowest level in nearly 21 months on Wednesday, pulled down by traders feared by the State Bank of India’s (SBI) decision to buy dollars.

The foreign exchange market has been slightly wary of the rupee’s latest slide, which has placed it within striking distance of its all-time low of 43.70 per dollar hit in August 1998 following economic sanctions imposed on India after its nuclear tests.

Dealers said the 43.70 level was a major psychological milestone, but added that it was not clear if a breach of this level would trigger major demand for dollars.

The rupee normally moves in a very narrow range against the dollar on most days. "The rupee has been steady. If it is depreciating, it is depreciating at a very reasonable pace. That is obviously because of the structure of imports and exports…the trade balance. Obviously if it has to depreciate, at some point of time it has to cross 43.70," Ravi Pai, vice-president, foreign exchange at HDFC Bank said.

SBI, India’s largest commercial bank, whose dollar sales sheltered the rupee earlier in the week from fears of large dollar out flows after the week-end Nasdaq crash, turned a dollar buyer on Wednesday, sparking a wave of buying from other banks.

"They (banks) had assumed that SBI would continue to only sell and would not come to buy," Pai said. "On Monday, SBI was selling dollars and…continued to do that even yesterday. When (it) did sort of buy today, people were taken aback as they had not prepared for that."

The Chief dealer at an American bank said SBI’s dollarpurchases triggered a rush among other banks to cover short dollar positions initiated on Tuesday to benefit from weekend swap differentials.

GRADUAL SLIDE LIKELY

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The rupee has depreciated by 2.7 percent in fiscal year1999/2000 (April-March) and analysts do not expect any runaway fall during the current year.

"Most certainly, rupee will continue to depreciate. Butwhether it will be 0.5 percent, one percent or 10 percent, that’s a call we have to make. My assumption is that it will not be more than 2.5-3 percent annually," Pai said.