Rupee under pressure again

MUMBAI, AUG 23: After registering an impressive recovery of 21 paise in the last two trading sessions, the Indian rupee came under pressur...

MUMBAI, AUG 23: After registering an impressive recovery of 21 paise in the last two trading sessions, the Indian rupee came under pressure on account of month end-dollar demand and declined sharply by ten paise to close at 45.78/79 per US dollar at the interbank foreign exchange forex market today.

Dealers said the dollar supply in the forex market improved significantly on account of last day of converting exchange earners8217; foreign currency EEFC balances by the exporters, but the heavy demand for the US currency absorbed the increased dollar supply today, dealers said.

Some of the dealers also attributed the delay in converting the excess dollar into rupees by corporates for the fresh decline in rupee value. In a move to cool down the volatile forex market and meet the rising demand, the RBI recently scaled down the balances in EEFC accounts to 50 per cent and directed the account holders to convert the excess of over 50 per cent positions into rupees before August 23.

The Indian unit opened nearly steady at 45.68/70 per US dollar, drifted lower immediately on some corporates month-end dollar covering coupled with tight dollar supply. The rupee moved in a wide range of 45.68-80 through out the day. It touched an intra-day low of 45.80 before closing at 45.78/79, ten paise lower from its previous close of 45.68/69.

Bankers were expecting at least one billion to come into the country in the next two days. Under the EEFC scheme, Indian exporters are allowed to retain part of their dollar earnings abroad. Over two billion of Indian exporters funds are currently lying in EEFC accounts abroad. On Saturday, the RBI8217;s Deputy Governor Jagdish Capoor had said the central bank was reviewing this facility.

8220;These accounts were put in place when the exchange control scenario was different8230; when there were a lot of restrictions. But after current account convertibility this sort of comfort is perhaps not needed,8221; Capoor had said last week.

The RBI deputy governor8217;s statement followed a decision last week, halving by 50 per cent the amount retained overseas, and a directive to exporters to convert excess dollars into rupees by August 23.

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Dealers said the outlook for the rupee, which is convertible only on the current account, continued to be bearish with the balance of payments BoP expected to be square in 2000/01 April-March after four years of surplus.

India8217;s forex reserves have fallen by nearly 2.4 billion from a high of around 38 billion in the last two months. 8220;The RBI sold dollars from the forex kitty to prop up the rupee,8221; said a banker.

Several agencies, including DCR India, have criticised the measure of propping up of the currency by using foreign exchange reserves and said it has depleted the reserves rather than help firm up the rupee. Since dollar has gained against currencies of most developed countries during the period, if rupee remained stable, India8217;s competitiveness in export market would be adversely affected.

The demand for dollars has been mainly due to surging imports increasing oil import bill caused by high international oil prices rather than absolute speculation. Moreover, foreign institutional investors have pulled out funds from the Indian markets.