Rupee falls against dollar

The RBI – which has been in the spot market on a daily basis – showed a very strong initiative to weaken the rupee against the greenback by intervening in the forward market. Analysts said that the RBI intervention in the forward market was prompted by the growing trade deficit in the April-June period.

Dealers said that the central bank intervened to buy outright spot dollars maturing in October, January and June next year. This had a cascading effect as forwards rose across the board by a minimum of 4 to 5 paise.

The three-month forward rate rose by 52 basis points to 3.80 per cent from 3.28 per cent while six-month forwards went up by 47 basis points from 3.73 per cent to 4.25 per cent. One-year forwards went up to 4.47 per cent from 4.13 per cent during the day.

"These are more realistic levels at which the RBI wants forwards to rule," a chief dealer in a private bank said.

Confirming the intervention, RBI sources said the central bank mopped up $40 million from the forward market. According to dealers, the RBI intervention was done at the most appropriate time as corporate demand was picking up and the dollar had strengthened in the past two days.

"The RBI thought this was the most appropriate time to intervene in the forward market as the rupee was showing signs of weakness," a corporate treasurer said.

"However, it remains to be seen whether it is a one-day phenamenon," a dealer in a private bank commented. The central bank’s strategy is likely to be clear in the next few days. "The RBI should show some teeth through continued intervention in this manner.

It should weaken the rupee considerably so that the Indian exports can be at par with their South East Asian and Pakistani counterparts," an anylst in a broking house said.

South Asian currencies like the Thai baht, Malyasian ringitt, the Philippine peso and the Paksistani rupee have depreciated considerably for the past one month, thereby hurting the Indian exports.

"Trade deficit has gone up to $ 1.39 billion from $ 0.93 billion in the previous year. While the exports have grown by a negligible 2.5 per cent, imports have gone up by 10.11 per cent. One of the contributing factors to the sluggishness of exports has been the appreciation of the rupee," the analyst said.

The RBI intervention in the forward market also signals that the central bank does not want to pump in liquidity into the system.