Re bounces back against dollar

MUMBAI, JAN 19: The rupee staged a smart recovery against the dollar rallying by 90 paise to close at 38.95/39.02 at the interbank foreign e...

MUMBAI, JAN 19: The rupee staged a smart recovery against the dollar rallying by 90 paise to close at 38.95/39.02 at the interbank foreign exchange market here on Monday. The Reserve Bank of India’s tight money measures announced on Friday boosted the spot rupee, but the tightening liquidity position pushed up the interest rates to 70 per cent in the inter-bank call money market.

“It was expected to move one way today and sentiments have changed,” said an IndusInd Bank official. The rupee opened at 39.80 today and stayed there for sometime as there was a lot of resistance from market. However, once exporters started realising that the rupee was expected to strengthen, they started bringing in their proceeds which saw the rupee strenghten to 39.35.At this level, there was some profit-taking which saw the rupee weaken marginally. But dollars selling by some of the nationalised banks saw the rupee breach the 39 barrier to touch a intra day high of 38.95 against tthe dollar. Dealers said that there were strayquotes of 38.90 also.

With the rupee staging a smart rally, the Bombay Stock Exchange (BSE) Sensex on Monday shot up by a massive 98 points to 3480.86. Although FIIs kept away from the market, seeing the rupee rally, speculators and FIs made heavy buying.

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“The Reserve Bank seems to be successful in its effort to stabilise the rupee,” said a dealer in a European bank, adding, “the RBI measures to reduce demand and increase supply of dollars in the forex market has to large extent been successful. A level of 38.80 to 39.20 is ideal and exporters should come and sell their remittances.”

However, the forward premium on dollar spurted further and January premia rose to a record 50 per cent while the six month forwards crossed the crucial 15 per cent barrier to close at 16.25 per cent. The Reserve Bank stayed away from intervening in the swap market despite the high levels.However, forwards continued to play havoc and moved in tandem with the overnight call money rates. While the call rates touched a highof 70 per cent the January premia saw a all time high of 50 per cent today. Six month forwards continued to climb and went up by 250 basis point to close at 16.25 per cent (annualised).

Dealers said State Bank of India conducted swaps for July maturities. “But export booking and import cancellations is driving the rates up. This coupled with the fact that the call rates are still very high and are yet to stabilise,” said a dealer. According to him, once the call rates stabilise at 15-20 per cent range the forwards will find a groove.

In the inter bank call money market, the overnight call rates remained high and deals were struck at 70 per cent. Prices of government securities (gilt) continued to fall and yields on short term treasury bills were higher than three government securities.

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Traditional lenders like Industrial Development Bank of Indai (IDBI) and Industrial Credit and Investment Corporation of India (ICICI) refused to lend below 40 per cent in the call money market. “Most of the deals werestruck at 40-60 per cent level. However towards close call rates came down to close at 25-30 per cent,” a dealer in a primary dealer said.