RBI measures push up rupee

The RBI’s measures managed to break the bear market for the rupee by sharply lowering the cost of funds for exporters to enhance their competitiveness on Thursday. It has also attempted to lure foreign portfolio flows back into the local stock markets by allowing investors to hedge theirincremental exposures.

"These measures are significant insofar as they help prop up the near term sentiment for the rupee. Already, the rupee has rebounded 1 per cent from an all-time low of 42.45 recorded earlier in the week. Yet, unless the government acts decisively and briskly on its budget agenda and produces results, the recent reprive for the rupee will be temporary and the RBI will have a daunting time delivering a credible low interest rate policy," a Stanchart Treasury commentary released today said.

Six-month forward premiums weakened to close at 10.1 per cent, higher than Thursday’s close of 9.50 per cent. Dealers said that banks which were arbitraging between the forex and money markets were covering, which saw forward premiums rising.

"Cash/spot and near forward premiums went up as the RBI advised banks to stop arbitraging between the forex and money market. Banks were thus scurrying for covering their near term forward positions," a chief dealer in a private sector bank said.

"Inessence, while the RBI statement, by warning against excessive volatility and injecting the fear of intervention among market players, provides the rupee a breather, it has not eliminated the chances of further currency weaknesses in 1998," the Stanchart commentary says.