Rupee falls again despite RBI steps

quot;Banks went long on the dollar anticipating demand from foreign fund and importers8230; genuine demand for dollars has been coming from all quarters. Players were covering their payables and the State Bank was absent in early trades,quot; a dealer at a private bank said, adding, quot;The current rupee slide is because of demand from importers and foreign funds8230; this will continue despite monetary measures.quot;

On Monday, the RBI measures had cooled down the volatility with the rupee recovering to close at a comfortable level of 44.74/75 today, showing an impressive recovery of 28 paise from Friday8217;s close of 45.02/03. The Indian unit came under tremendous pressure last week after witnessing a continuous fall following huge outflows by foreign institutional investors FIIs coupled with domestic corporate dollar demand. The rupee had dipped to an all-time low of 45.07/08 on Friday, before closing at a record low of 45.02/03, losing 33 paise of its value from the previous week8217;s close of 44.67/70.

Sensing the crisis in the financial markets, the RBI hiked the bank rate by one percentage point to eight per cent and CRR by half-a- percentage point taking away liquidity to the extent of Rs 3,800 crore from the banking system.

Analysts said the rupee may continue to fall below the 45 mark to the dollar despite the measures taken by the Reserve Bank of India to check the slide. 8220;In January and August 1998, there was inter-bank speculations on the exchange rate and after RBI raised bank rate and CRR, the rupee appreciated,8221; I-Sec said. But the declining trend in currency continued after the monetary measures were removed as rupee has a natural tendency to shed its value keeping parity with interest rate, inflation rate and other things, it added.

quot;However, in the current instance, the impact on currency may not be so stark,quot; the report said. The RBI measures, I-sec said, are estimated to result in outflows of about Rs 9,000 crore 8212; Rs 3,800 crore due to CRR hike and another Rs 5,000 crore due to reduction in refinance availability to banks.

I-Sec cautioned that if the rupee again slides to 45 a dollar in a month or two, RBI may take further measures. It report said interest rates on government papers are expected to come under pressure due to the recent steps taken by RBI.