Re hurtles to 21-month low

The RBI intervention at this level was massive and had a cooling effect on the edgy market which saw the rupee touch Rs 36.65 level. Confirming the intervention, an RBI official said, “the RBI intervened aggressively and intermittently.”

Subsequently, State Bank of India entered the market to buy dollars which saw rupee weakening once again to close at the Rs 36.70/71 level. Dealers said that although there was genuine corporate demand for dollars initially, once the weakening of the rupee started, inter-bank activity picked up. “It is typical of banks to jump in when the rupee weakens,” a dealer said.

The central government, meanwhile, made it clear that it will not interfere with the value of the rupee. “The government will not interfere in the rupee,” Union Commerce Minister B B Ramaiah, told a news agency in New Delhi today, adding, “we do not anticipate a crisis in exports, it is doing well.”

Dealers said the commerce minister’s statement means that the exports are doing reasonably well and there is no need for higher depreciation.

“Exporters have been crying hoarse for a higher depreciation of the rupee for exports to pick up. But now with the minister issuing a statement that the exports are not in crisis, the rupee might not depreciate in a big way,” a dealer with a public sector bank said. If the government withdraws the MTNL issue, the rupee will take further beating. The fall in foreign exchange inflow will strengthen the dollar against the rupee.

As like in the spot market, the forward market remained volatile and the apex bank intervened selling dollars maturing in January, March and September. “The maximum intervention was seen in the September maturities. The September premia hovered wildly today as trading banks continued to take advantage of the arbitrage opportunities in the non-delivery forwards,” said a dealer.

The September premia touched 240 paise and after the RBI intervention it fell by a sharp 25 paise to 215 paise. It subsequently closed at 218/221 paise. RBI hit only those banks which were indulging in arbitrage when it was selling dollar, said a market source. Six month forwards remained cool and closed at 7.25 per cent (annualised) down by 30 basis points over yesterday’s levels.