RBI’s rupee support package riles exporters

“The more the RBI attempts to contain rupee by way of pushing dollar in the market or otherwise, the less it seems to succeed. Therefore the market direction which it wanted to drive in any case be allowed to touch the 48 level and precious export earnings are not made to drain out,” the FIEO said in a statement issued here today. However, bankers said exporters were holding back remittances to take advantage of the rupee depreciation. If the rupee continues to fall, exporters gain as they will get more profits after conversion.

FIEO said the Reserve Bank of India is right in asking big bulls in the exporting community for speedier repatriation of their proceeds to the motherland. “We at FIEO are of strong opinion to stabilise the foreign exchange market at home, but simultaneously are pained on the act of RBI by fixing reference rates whether 45.93 or else,” FIEO president Navratan Samdria said.

It was further observed by the exporting community at large that the RBI is emphatically concerned by one million dollars probably held by the exporters in foreign currency accounts or otherwise which are beyond their control. The exporters face innumerable problems in realizing their dues from overseas buyers, transactional procedures and delayed deliveries due to shipping and air cargo blockages at various ports, he said. “Besides, the RBI has spent precious export earnings to contain rupee to the tune of two billion dollars. Such anomalies at the hands of RBI are making nation’s trade and foreign exchange reserves damaged,” Samdria opined.

In a thin volatile market, the rupee rebounded to 45.75 per dollar in afternoon deals after sinking to a historic low of 46.08 in some morning trades. At its lowest on Friday, the rupee had lost 1.4 per cent this week and 5.6 per cent in the year.

In contrast, the rupee depreciated just 2.7 per cent in the whole of 1999/2000 (April-March).

Traders said sentiment was boosted for a while on Friday afternoon by a central bank query to banks asking them to reveal the amounts outstanding with exporters under their foreign currency earnings accounts. A senior Reserve Bank of India (RBI) official said the central bank was considering asking exporters to bring in their dollars, estimated at around $2 billion.

While the news helped the rupee rally, the market remained volatile with traders still uncertain over the long-term impact of the proposed measures.Analysts said the proposed move was one of the last options available to the RBI and felt that continued demand for dollars beyond this point would force the central bank to step into the market directly through dollar sales.

"We will see how this supply of $2 billion pans out, if bids continue beyond this point they (RBI) will have to intervene directly," said an analyst at a foreign bank. So far, the RBI has sought to strangle money market liquidity and push up interest rates in a bid to support its currency.

But these measures have failed to stem the rupee’s rot, with market sentiment on the currency distinctly bearish amid concern over the country’s external sector. India is expected to have a square balance of payments at the end of the current financial year (April-March) after four years of surplus and the current account deficit is estimated to hit two percent of gross domestic product, from 1.5 percent in 1999/2000.

Forex reserves fall by $ 322 mn

MUMBAI: India’s total foreign exchange reserves continued its downtrend rally and decreased by US dollar 322 million to $ 35,874 million during the week-ended on August 4, 2000 as compared with the previous week close of $ 36,196 million, according the Reserve Bank of India (RBI) weekly statistical supplement here today.

Foreign currency assets also declined by $ 298 million to $ 32,942 million. However, the special drawing receipts (SDR) declined by $ 24 million while gold reserves continues it steady trend at $ 8 million.

Foreign exchange reserves have already fallen by more than $ 2.0 billion from a mid-April peak of $38.341 billion, reflecting central bank measures to bridge demand-supply mismatches. Analysts said one possible source of supply could be from foreign funds buying into depressed Indian equity markets. After selling nearly a total of $ 550 million in June and July, foreign funds have bought around $ 114.9 million In August.