Rupee wipes out losses

quot;Today was a day of just the SBI8217;s sales. Initially the market was caught by surprise, but the longs of dollars were gradually squeezed out,quot; a dealer with a foreign bank said. The SBI8217;s heavy dollar purchases and some imports had driven the rupee8217;s 0.85 per cent 40 paise fall on Wednesday, and the market was still trying to interpret the two days8217; moves, dealers said.

quot;It is quite likely the dollar bids this morning got the central bank worried. They probably wanted to ensure importers did not panic,quot; the chief dealer of a foreign bank said. There were hardly any cash deals for settlement on Thursday on account of a bank employees8217; strike.

Traders had said Wednesday8217;s move was engineered by the central bank.Dealers said the SBI8217;s dollar sales on Thursday were also possibly at the RBI8217;s behest.

The Finance Minister Yashwant Sinha had on Wednesday said the rupee8217;s volatility was on account of a temporary mismatch in flows and he hoped the RBI would respond adequately to the situation. Dealers said they did not expect a full retracement of Wednesday8217;s steep fall from levels of 43.68 and were expecting dollar bids to emerge.

But the slow rise in forward premia indicated hedging was still not aggressive, they said. The six-month forward premium ended up at 2.47 per cent compared with Wednesday8217;s 2.40 per cent.

Dealers predicted the rupee will weaken slightly in the near-term and head closer to the 44 level. quot;I still think it was a planned move and today8217;s actions were aimed at ensuring importers did not panic,quot; the chief dealer of a foreign bank said.

The market speculated the RBI may have wanted a weaker rupee for several reasons, including the need to adjust the real effective exchange rate REER and keep it on par with other Asian and global currencies which have been falling. quot;It8217;s just a one percent adjustment after a year of stability, it8217;s quite tiny. If you look at it as a weakening against a very strong dollar, it8217;s really an adjustment for dollar strength rather than rupee weakness,quot; another dealer said.

In the past few months, major Asian currencies like the Japanese yen and the euro, as well as Asian currencies like the Thai baht and Indonesian rupiah, have weakened. The baht has lost 3.7 per cent and the rupiah 15 per cent this year. The rupee, technically a gradually depreciating currency, has been very strong in the past year amid large foreign investment. This has boosted confidence in it, with most importers choosing not to hedge.

Wednesday8217;s crash had unsettled some corporates, but if they perceived the rupee would stabilise soon, the current demand for dollars would subside.