SBI steps in to avert a major rupee crash

MUMBAI, AUG 9: The Indian rupee which fell to the year's low of 43.58/59 bounced back to close higher at 43.40/42 as State Bank of India ...

MUMBAI, AUG 9: The Indian rupee which fell to the year8217;s low of 43.58/59 bounced back to close higher at 43.40/42 as State Bank of India SBI stepped in and sold dollars to stabilise the floundering rupee in a highly volatile foreign exchange market on Monday.

The rupee opened slightly higher at 43.47 and came under pressure due to constant corporate dollar demand and lack of support from the central bank. It crashed to 43.58/59 later, which is the lowest since August 19, 1998 and 11 paise lower from Friday8217;s level. However, in the afternoon, the Indian currency got a boost after SBI, apparently on behalf of the Reserve Bank of India, started pumping huge amount of dollars into the system.

The rupee not only recovered its initial losses, but also closed higher by six paise at 43.40/42, as against 43.46/48 of the previous day on SBI8217;s dollar selling support. SBI sold about 200 million today to stabilise the rupee, forex dealers said.

8220;The Indian rupee continued to fall for the last three weeksdespite the ending of the border crisis. The rise in oil prices, which pushed up the dollar demand and the diminishing foreign institutional investors inflows ahead of the election affected the rupee value. Heavy covering by importers in the near term payables and sustained greenback purchases by state-run firms also added pressure on the rupee,8221; said a dealer.

quot;There was active corporate interest for dollars in early trades. Most expected the Reserve Bank to intervene at the 43.54 level. That never came about, and banks started building up long-dollar positions,quot; said another dealer, adding, 8220;both state-run and private-owned corporates were seen bidding for dollars. A few banks were also rolling over their FCNR-B liabilities. It appears as if corporates with unhedged positions rushed into cover after seeing the weakness in the spot rupee.8221;

Meanwhile, when asked about a weakening in the value of the rupee, Sinha said he was satisfied with the way the Reserve Bank of India RBI was handling the foreignexchange market. 8220;Keeping a watch on the foreign exchange market is the responsibility of the RBI. They have done a good job so far. I am absolutely satisfied with the way they have handled the issue. And I am confident they will continue to handle it so even in future,quot; Sinha said.

The rupee is currently trading at its lowest levels since last August when it hit a record low of 43.70 per dollar. Since opening last Monday at 43.31, the rupee has weakened steadly on a surge in dollar demand and reduced supply. 8220;Foreign inflows have all but dried up while demand has been steady,quot; said the chief dealer at another foreign bank. quot;In addition the rupee has not been propped up at any level expected by the market,quot; he said.