RBI package cools rupee

MUMBAI, December 3: The Reserve Bank of India's support package for the rupee - which had dropped seven per cent since November 17 - appear...

MUMBAI, December 3: The Reserve Bank of India8217;s support package for the rupee 8211; which had dropped seven per cent since November 17 8211; appeared to be doing its job as speculators kept away and the currency turned steady at the volatile foreign exchange market on Wednesday.

Opening at Rs 39.26/29 level, the rupee fell on renewed demand for dollars to touch a intra-day low of Rs 39.48. Subsequently, the rupee recovered during the day after SBI entered to sell dollars to touch a high of Rs 39.15/20. The rupee closed at Rs 39.26/29.

8220;It was suprising that the SBI sold as all these days it has been buying dollars for public sector clients. It must have sold these dollars under central bank pressure,8221; said a dealer.

In the forward dollar segment of the market, short-term forwards were much dearer than long-term forwards. The six-month forward premium eased to 7.20 per cent annualised from 7.60 per cent. One month forwards were pegged at 8.80 per cent, 2 months closed at 8.45 per cent, 3 months closed at 7.90 per cent, 4 months at 7.70 per cent and five months at 7.45.

The RBI on Tuesday announced measures 8211; including a hike in CRR and ban on authorised dealers from offering forward contracts to corporates 8211; designed to pressure short-term interest rates higher, and stop players using the forward market to speculate on the rupee weakening.

8220;The RBI has virtually killed the forward market beyond six months,8221; said a senior banker.

If negotiations to form a new coalition failed and the country needed fresh elections to find a successor to Prime Minister Inder Kumar Gujral, the rupee could fall, dealers said. 8220;The prospect of yet another election is also likely to contribute to further pressure on the rupee further out,8221; Standard Chartered Bank8217;s London-based analyst Mitul Kotecha said in a note to clients.

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There were dollar sellers when the rupee approached the Rs 39.50 level, and buyers again when it neared Rs 39.0. Dealers said some of the dollar selling may be banks anticipating the influx of funds from a 370 million Euro issue by MTNL which was due to be completed on Thursday.