Rupee plunges further

The rupee dipped sharply in intra-day trades on Monday to touch the 45 mark to the dollar, but recovered by close of trades to 44.80/83 whil...

The rupee dipped sharply in intra-day trades on Monday to touch the 45 mark to the dollar, but recovered by close of trades to 44.80/83 while in the forwards, discounts sharpened. Opening the day at 44.52/54 from its weekend8217;s close at 44.50/52, the rupee came under pressure after bunched dollar inflows, which normally gather over the weekend and arrive on Monday mornings did not come through to to the extent it does.

8220;At 45 levels, there was intervention by the Reserve Bank of India via state-run banks. The dollar sales arrested the fall in the rupee,8221; a dealer with a private-owned bank said.

The market is now on the watch out for foreign funds investment patterns. Overseas funds sold shares worth 73.8 million last Thursday, taking the total figure for the week gone by to a net sales figure of 60.7 million. This was in contrast to net purchases of nearly 980 million from the start of April to April 23. The rupee hit a 51-month closing peak on April 7, and is still overvalued by nearly three per cent.

The rupee had lost a massive 47 paise last week after nervousness took a vice-like grip on the market following exit polls predicting a fractured verdict for the Lok Sabha. Customary heavy month-end dollar demand in the face of lingering fears of a cash-dollar shortage in the system also weighed heavily on the rupee.

The weakness in the rupee is also on account of the fact that the dollar was buoyed overseas by expectations of strong US economic data, fuelling the case for interest rate rises by the Federal Reserve, and by Chinese Premier Wen Jiabao8217;s comments about the need to cool the red-hot economy.

Meanwhile, with forward dollars trading at discounts to the spot-value in the local market amid a shortage of cash-dollars, the one-month forward was providing an arbitrage gain of about 20 paise between the onshore and offshore values. Some banks have been trying to capitalise on the arbitrage opportunity existing between the onshore and offshore forward dollar markets since last week, by buying locally and selling them in the non-deliverable forward market.