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Jaya, Kelkar factors push rupee down to seven-month low; Rs 42.68/70 vs $.

M Damodaran in Bombay

The rupee declined sharply by 25 paise against the US greenback, hitting a seven-month low, on hectic dollar demand due to political uncertainty, at a volatile interbank foreign exchange market today.

Rupee opened lower at Rs 42.44/46, further travelled southwards due to panic greenback buying by importers, fearing the collapse of the government and further fall in the rupee value.

It touched an intra-day low of Rs 42.76/78 before closing at Rs 42.68/70 as against Rs 42.43/4350 of the previous day.

The rupee reported the level of Rs 42.82/92 on August 20 last year.

The forex market -- it has been quiet for the last couple of months, thanks to an almost rocksteady rupee, industry-friendly Budget and policies of the government -- suddenly turned volatile, after the All India Anna Dravida Munnethra Kazhagam's decided to withdraw its ministers from the Union government.

Yesterday, Finance Secretary Vijay Kelkar talked of the need for further cuts in interest and exchange rates. This also fuelled the downswing today, dealers said.

Sensing threat to the survival of the government, corporates resorted to panic dollar buying at levels sparked by market forces. State Bank of India, which was seen buying the greenback at the lower levels in the morning, sold chunks of dollars at the higher level, dealers said.

The previous occasion the rupee ruled this low was on August 20, 1998 when it opened at Rs 43.50 and closed at Rs 42.68.

The Reserve Bank of India reportedly intervened the forex market and pumped in $ 40 to 50 million in support of the rupee when the rupee touched the level of Rs 42.76/78 level, leading forex dealers said.

The forward market also witnessed hectic activity with heavy import covering. Forward premia ended higher on paying pressure. Near forwards moved up by 2-3 paise while far-forwards rose by 8-9 paise.

The sixth-month annualised and yearly premia closed higher at 7.02 per cent and 7.42 per cent respectively as against 6.72 and 7.28 per cent of the previous day.

The cash/spot and cash/tomorrow finished at 0.75-1.00 paise and 0.25-0.50 paise premium respectively. The month-wise premium in paise were: April 13-14, May 37-39, June 61-64, July 86-89, August 114-117, September 141-144, October 170-173, November 200-203, December 228-231, January 256-259, February 281-284 and March 308-311.

Elsewhere, the RBI fixed the reference rate for US dollar seven paise higher at Rs 42.51 as against Rs 42.44 of the previous day.

In the cross currency, rupee depreciated against the Japanese yen and euro while it strengthened a bit against pound sterling. Yen ended at Rs 35.08 (34.96), euro at Rs 45.73 (45.66) and sterling at rs 67.93 (68.10).

In the domestic money money, the calla rates eased on ample liquidity and lower demand and ended below the repo rate at 5.25-5.75 per cent.

UNI

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