Unabated fall in rupee value

MUMBAI, Aug 21: The foreign exchange market came under intense speculative attack for the second successive day with the rupee plunging to ...

MUMBAI, Aug 21: The foreign exchange market came under intense speculative attack for the second successive day with the rupee plunging to Rs 36.27 against the dollar on Thursday. However, the Reserve Bank of India RBI kept away from the market and did not intervene to prop up the plunging rupee.

The last time the rupee hit such a level was on February 23, 1996. Opening the day at Rs 35.95, the spot rupee went southwards to breach the Rs 36 mark and touch the Rs 36.03/08 level. It further fell to Rs 36.10/12 levels as fresh demand for dollars came in from exporters. After sustaining at these levels for sometime, the rupee collapsed after the State Bank of India entered the market to buy dollars for its corporate clients.

8220;Once SBI entered the market all hell broke loose. The rupee just went on slipping after 4 pm when the SBI came in to buy dollars. It dipped from Rs 36.12 levels to touch Rs 36.25 against the greenback,8221; a dealer with ICICI Bank said.

According to dealers, the SBI bought about 100-150 million from the market. Although it could not be confirmed some dealers said that the rupee also touched Rs 36.35 against the greenback. The rupee finally closed at Rs 36.27 levels, dealers said.

However, the forward premium on dollar regained some of the lost ground today. Six month forward premia which has strengthened to 145 paise on Tuesday came down to close at 125/135 paise. A wide difference between the buy and sell quotes display a complete lack of depth and abscence of players. 8220;Forward premia which had gone upto 7.9 per cent on Tuesday came down to 6.9 per cent,8221; a dealer in a foreign bank said.

P H Ravikumar, senior vice president at ICICI Bank, said the forwards are likely to dip further. quot;I expect the six month forwards to settle at 5.5 per cent,quot; he said.

The spot rupee had started to dip since Wednesday after the market reacted to Prime Minister I K Gujral8217;s statement said that the RBI and the finance ministry were looking at setting a band for the rupee. The RBI later clarified that the report was quot;misleadingquot;.

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On Wednesday, the rupee had crashed to an intra-day low of Rs 36.14 per dollar in morning trade compared to Tuesday8217;s level of Rs 35.71. However, the rupee recovered to Rs 35.89/92 per dollar and closed at Rs 35.90/95 after the RBI denied any move to introduce an exchange rate band.

8220;The increased demand for US dollar by the corporate sector also added to the downfall of Indian rupee. The RBI8217;s absence from the market since yesterday also had a major impact on the rupee depreciation,8221; said a dealer with a foreign bank. In the money markets, though call rates remained stable at 5.25 to 6 per cent throughout the day, security prices crashed after the government of India announced a Rs 5,000 crore five-year auction. The 12.69 per cent 2002 reacted sharply and lost ground by 120 paise. quot;Prices of securities across the board fell by 50-70 paise which is indeed one of the sharpest falls recorded in the securities marketquot;, a dealer with a NSE said.

Money market dealers said the issue is likely to devolve on the RBI in a big way. A dealer with a leading primary dealer said that the issue is likely to devolve by 50 per cent. quot;Given the volatility in the forex markets, banks are holding back investments in securities. In fact some are unwinding their positions and are selling gilts, which is resulting in a fall in prices,quot; a dealer said.