Rupee reeling under heavy dollar demand

MUMBAI, AUG 20: With the US deciding to continue sanctions and foreign investors pulling out funds from the Indian stock markets, the rup...

MUMBAI, AUG 20: With the US deciding to continue sanctions and foreign investors pulling out funds from the Indian stock markets, the rupee reeled under heavy corporate demand for the dollar and fell by another eight paise to 43.57 against the US greenback at the inter-bank foreign exchange market on Friday.

As the rupee had fallen by seven paise against the dollar on Thursday, the total fall in the last two days works out to 15 paise. The rupee had plunged to historic lows of 43.60/65 in intra-day trade on August 19, 1998, forcing the central bank to intervene and initiate a series of measures to halt the rupee slide.

Reports that the US sanctions imposed after the nuclear tests would continue and lending by the International Monetary Fund to India would be deferred put pressure on the Indian currency, dealers said. Apprehension of a slowdown in forex inflows triggered by speculation that foreign funds were sellers on the local bourses induced banks to go long on the dollar.

The rupee opened steady at 43.49, declined further due to heavy corporate demand and ended sharply lower at 43.57, eight paise lower from the previous day8217;s close of 43.49. 8220;The dollar buying by State Bank of India SBI in the morning, which usually supports the rupee, also put pressure on market players to cover up their short positions. However, SBI reportedly sold some amount of greenback in the afternoon at around 43.55 level,8221; dealers said.

Forward premiums continued its rally and ended further higher on paying pressure. The sixth month and yearly annualised premiums closed higher at 5.00 per cent and 5.25 per cent respectively as compared to 4.90 per cent and 5.10 per cent.

8220;There were a number of factors today. First there was underlying bearishness coupled with the morning newspaper reports of G-8 nations holding back loans,quot; the head of currency trading at a foreign bank said. quot;Then later in the day, the market was agog with talk of a possible yuan devaluation. The fact the rupee reacted to all of these shows that there is good underlying demand for dollars,quot; he said.

Dealers said the SBI, which had been expected to defend the rupee, did not offer support to the Indian currency on Friday. quot;With SBI not holding any levels today, the rupee kept getting weaker,quot; a dealer at an American bank said.

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Dealers said dollar supplies had dwindled as foreign funds were not bringing in fresh investments into Indian equity markets. Latest data released by the Securities and Exchange Board of India SEBI showed foreign funds were net sellers this month of 70.9 million in Indian equities and debt, till August 18.

Foreign funds had invested around 1.0 billion in Indian markets in April-July. quot;The basic issue is of dollar supplies. The supplies are only from one source, which is the central bank,quot; a dealer said. With foreign investors flocking to the US market these days, there can be further outflow of funds in the coming days.