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Rupee's fall continues; Rs 43.12/15

The rupee continued its fall against the US dollar on heavy speculative dollar buying by panicky corporates and banks at the interbank foreign exchange market today.

The decline was mainly due to political uncertainty that has been prevailed at the Centre for the past couple of days in the wake of the threat by the All India Anna Dravida Munnethra Kazhagam supremo J Jayalalitha to withdraw the support to the Bharatiya Janata Party-led government. However, the decision to defer action at a crucial meeting in Madras also cooled down the volatile forex market.

In a significant development, Finance Minister Yashwant Sinha said in New Delhi that henceforth the Union government will allow the market forces to determine rupee's value. ''There won't be frequent governmental interventions,'' he told a TV channel. He also admitted that the government is concerned about the south Asian currency crisis, especially the freefall of Japanese yen and talk of possible devaluation of Chinese yuan.

The Indian rupee opened at 43.12/17, and continued to sink and touched a low of Rs 43.28 in the morning trade as the market was anxiously waiting the result of the AIADMK's meeting. Corporates and banks started early heavy dollar buying, fearing a possible political crisis. But in the afternoon, the rupee started strengthening on dollar selling by banks and interbank players on the reports of the AIADMK deferring the decision. The rupee moved upto Rs 43.06 level before closing at Rs 43.12/15 against the previous close of Rs 42.95/43.05, losing its value by about 13 paise.

Forward premiums were also shot up in the intra-day trading but later eased slightly towards the close on State Bank of India's receiving in almost all maturities, dealers said.

Import bookings were conducted in all forward dollars, dealers said. The third month, sixth month and yearly annualised premiums were quoted higher at 8.56 per cent, 8.51 per cent and 9.16 per cent respectively.

Leading forex dealers opined that the apex bank had concentrated indirect interventions instead of direct intervention in the forex market, in the recent past and it had intervened in the market to arrest the rupee fall only twice during last seven months.

The dealers said that the Central Bank had intervened the forex market on January 14 when the rupee dropped to Rs 40.22 level from the day's opening of Rs 39.90 per dollar due to heavy corporate dollar buying spree. However, the RBI's immediate intervention to arrest the rupee fall helped it to close at Rs 40.12/15.

The RBI announced a package of measures on January 16, 1998 that includes cut in bank rate to nine per cent from 11 per cent and reduction in CRR to 10 per cent from 10.5 per cent. With the RBI's measures, the rupee strengthened to Rs 38.50 by January 27 and remained more-or-less steady till the Pokhran tests.

The rupee fell to 40.75/41.10 when it witnessed major volatility on May 27 during thee post-Pokhran period in the fear of stringent sanctions by European countries. But the RBI preferred to watch the rupee movement instead of any kind of direct intervention, dealers said and added that the rupee then again declined further to Rs 42.25 from Rs 41.79 on June 9 and broke the 43 level on June 23 on heavy dollar buying spree.

Cash/spot businesses were conducted between 3.5-4.5 paise premium, while cash/tomorrow were done between 0.25-0.50 paise premium. The month-wise premiums in paise were : August 14-17, September 42-45, October 76-79, November 106-110, December 137-141, January 169-173, February 194-197, March 232-236, April 265-270 and May 300-305.

The Reserve Bank of India has fixed the reference rate for US dollar at Rs 43.19 against Rs 42.94 of the previous day.

In the overseas markets, the pound sterling remained nearly steady against US dollar, while deutsche mark and Japanese yen became a bit stronger. The rupee slightly weakened against sterling, strengthened a bit against dm and remained steady against yen and were quoted Rs 70.10 for sterling, Rs 24.13 for DM and Rs 29.58 for yen.

In the domestic money market, the call money interest rates opened steady at 6.75-7.00 per cent, ruled in the same range throughout the day and closed at 6.90-7.00 per cent.

During the week, the rupee suffered heavy depreciation due to political uncertainty coupled with Asian economic crisis and slump stock markets and lost its value by 52 paise to Rs 43.12/15 from Rs 42.60/63 on last Friday. Dealers attributed the rupee's slide to the speculative dollar buying in view of the political crisis, weak Asian markets and currencies.

UNI