Rupee under pressure again

MUMBAI, JAN 20: The foreign exchange market witnessed nervousness on Tuesday as the rupee came under pressure against the dollar once again....

MUMBAI, JAN 20: The foreign exchange market witnessed nervousness on Tuesday as the rupee came under pressure against the dollar once again. The spot rupee lost ground and closed marginally weaker at 39.08/18 8212; 10 paise weaker than yesterday8217;s close 8212; and forward premium on dollar zoomed to a new peak.

Simultaneously, in the call money market, interest rates continued to remain high following the RBI decision to hike bank rates and cash reserve ratio. Opening at 45-50 per cent, overnight call rates softened to 20 per cent but tightened as some small banks went on a borrowing spree. The rates closed at 40-45 per cent levels today 8212; 20 per cent more than yesterday8217;s close.

The spot rupee opened at 39.10/18 level but strengthened on exporters unwinding their dollar positions in the morning. At one time the rupee was trading at 38.60/65 and was all set to touch 38.50. 8220;But importers came and started to buy dollars, which led to a lot of pressure on the rupee,8221; said a chief dealer in a private sector bank. The dollar finally closed at 39.08/18.

Dealers said that bearish sentiments about the rupee had still not vanished. 8220;There was demand for dollars as importers thought it was the right level to buy dollars,8221; dealers said. But treasury chiefs are of the view that small volumes are impacting prices significantly because the Reserve Bank8217;s measures have made the forex market very shallow. The Indian currency had recovered by nearly a rupee to around Rs 39 level on Tuesday.

In the forward dollar segment, rates moved in tandem with call money rates. 8220;There was a lot of pressure on the forwards towards the end of the day,8221; a dealer in a foreign bank said. Initially during the day forward premium had come down but increased demand from exporters to cover, coupled with import cancellations saw six-month forwards soar to close at 18 per cent. January-end premia crossed the 50 per cent mark to close at 57 per cent and one year premia annualised closed at 16 per cent 300 basis points higher than yesterday.

Dealers said that it will take some time before the forwards settle at lower levels. 8220;As soon as the call rates settle at 15-20 per cent levels, the forward rates will come down,8221; P H Ravikumar, executive vice president treasury at ICICI Bank said. According to him, players are still not certain about the rupee stability, which is the cause for the nervousness.In the call money market, institutional lenders like ICICI, IDBI and UTI refused to lend below 40 per cent. This saw call rates closing at 40-45 per cent levels after dipping to 20 per cent during the course of the day. Gilt prices remained stable on a lacklustre day but banks are slowly showing some buying interest, dealers said.