RBI salvages rupee from record low of 44.95

The RBI warned banks against speculation on the currency movement and asked them to cover up their long-open positions. The RBI observed that the prices of the currency were moving very fast against thin volume of trade.

Dealers said the Reserve Bank of India initially made routine enquiries in the market, and subsequently asked banks to square long positions. Reports that the RBI also sold dollars could not be confirmed. "According to market information, they were few transactions of small value while the price was being moved sharply higher by some banks. This indicates that the inter-bank activity this morning, despite RBI’s repeated reminders, seem to be speculative in nature," the RBI statement to the market read.

"RBI has instructed banks to maintain square position for the day. If necessary, RBI will intervene directly in the market," it said. Dealers said state-run banks moved with the market in morning trade, absorbing the dollar sales by other banks.

Dealers said there had been no paying pressure, but receiving will commence only after the uncertainty over liquidity clears. The market was waiting to see if the RBI took measures to tighten liquidity to keep the rupee’s fall in check, they said.

“The RBI directive, which is only for a day, certainly helped the rupee from further degeneration,” said a dealer. The RBI move reined the rupee downfall and it bounced back to the 44.61 level, the day’s highest, before finally closing at 44.72/7350. Market player State Bank of India, which normally chips in the check the rupee movement, preferred to stay away from market activity, which resulted in the RBI intervention, the second since the last one month.

Dealers, however, were quick to add that the rupee is likely to fall further on Friday since the RBI directive holds true for a single day only and the thirst for dollars is yet to quench.

The rupee is likely to lose around 1.8 per cent during the rest of the financial year, a Reuters poll of 14 corporates and economists released on Thursday showed. The poll has predicted the rupee value against the dollar at 45 by September 2000, 45.30 by December 2000, 45.57 by March 2001 and 46.33 by September 2001.

These levels are a big change from expectations at the start of the year when a Reuters poll had predicted the rupee at 44.02 by September 2000 and 44.54 by March 2001. Those levels have already been surpassed. But the rupee has in recent weeks lost close to 2.5 per cent, a downmove believed to be part of the central bank’s adjustment of an overvalued rupee to its inflation adjusted trade-weighted exchange rate.

RBI takes 39% devolvement
Mumbai: The central bank fixed a cut-off price of Rs 105.75, implying an yield of 10.7065 per cent. The RBI receieved 104 bids for Rs 2,904.50 crore as against the notified amount of Rs 4,000 crore. It accepted 70 bids for Rs 1,505 crore, with Rs 1,560 crore devolving on the apex bank and remaining Rs 935 crore on the primary dealers.

Post-auction, the Centre has mopped up Rs 33,683 crore out of its gross borrowing programme of Rs 1,17,00 crore for fiscal 2000-01. The devolvement on the RBI suggested the lack of appetite among players for medium and long term bonds. Most dealers expected the cut-off price in the range of Rs 106.30-106.80. "The fact that the amount received as bids was lower than the notified amount clearly shows lack of interest for bonds of similar or higher tenor," the treasurer with a private bank said.