COMMENTARY
INTERVIEW
SPECIALS
CHAT
ARCHIVES

Rupee plunges by 61 paise; RBI intervenes late in day

The Indian rupee fell sharply by 61 paise against the US greenback and touched a 21-month low of Rs 37.50 following heavy dollar buying by commercial banks and corporates in an extremely volatile trading at the interbank foreign exchange market on Tuesday.

The market opened higher at Rs 36.93-95 per US dollar, and began rising against the dollar. The rupee soon crossed the Rs 37.00 mark on heavy demand from importers. When the Reserve Bank of India did not intervene even after crossing the Rs 37-mark, corporates and commercial banks increased their dollar purchases, pushing the rupee to its lowest point in the day, Rs 37.50, at 1300 hours IST. At this juncture, the RBI came in strongly, pumping $300 million into the market to salvage the rupee to a level of Rs 37.30-35.

However, the rupee fell further and was traded in the lower level of Rs 37.40/45 during the afternoon trade, forex dealers said. The rupee finally closed at Rs 37.40 per dollar, 51 paise lower than yesterday's close of Rs 36.89.

Forex dealers attributed the record fall in the rupee value to heavy import covering, and the cancellation of external commercial borrowings in view of the changed scenario in the world markets, especially the currency crisis in Southeast Asia and the stock market crash in Hong Kong. The demand for dollars far exceeded supply today, they added.

Said forex trader Jamal Mecklai of Mecklai and Mecklai, "Today the RBI did not rush as soon as the rupee began falling. It waited for the market to expend its energy and push the rupee down, and I think the rupee has now fallen quite far enough now."

He was seconded by Arvind Sethi, head of treasury, ANZ Grindlays. "So far, the RBI was seen intervening every time the rupee fell by 10 paise fall over the past two days. Today, the RBI just stayed away and this encouraged the corporates and banks to go in for big dollar purchases. The rising demand, in turn, pushed the rupee down until it reached Rs 37.50, at which point the RBI move in."

Both felt that the RBI's late intervention sent out a signal to traders about the central bank's reluctance to intervene in market operations except to prevent extreme volatility.

The rupee has registered a loss of about 51 paise at Rs 37.40 as against the previous close of Rs 36.89 per dollar.

The RBI intervened both in the spot as well as forwards particularly in the near forwards in January and February, forex dealers said.

Reserve Bank Governor Dr C Rangarajan, in a statement issued in Bombay, this afternoon ruled out a further weakening of rupee against the dollar. He said that the RBI has been ensuring that there is no undue volatility and there are orderly conditions in the market. He noted that the rupee has been adjusting to the changing circumstances.

"We believe that the adjustment that has already taken place in the value of rupee is adequate. In view of the fundamentals, there is no ground for a further weakening of the rupee," he said, adding, "The RBI will not hesitate to intervene to prevent any overshooting."

However, Federation of Indian Export Organisations President Ramu S Deora has asked the RBI to leave the foreign exchange market to demand supply forces and let the greenback move up further.

A spokesman at a leading foreign institutional investor firm said that there was room for a further depreciation of the rupee by another one per cent from the current level till the year end.

Thailand is, however, not on the horizon. Mecklai said fears of a Southeast Asian-like crisis is completely misplaced. "The Indian rupee has fallen marginally by about four per cent while the Thai baht and Malaysian ringit fell by around 80 per cent," he asserted.

Sethi pointed out that from August last, when the rupee was at Rs 35.70 to today's level of Rs 37.40, the rupee has fallen less than five per cent. He refused to give a categorical final level for the rupee, but felt that it might fall by a total of 10 per cent, which should see a level of Rs 39 per dollar.

Deora said he was expecting the dollar to reach Rs 38 level soon and even Rs 40 in the next three months provided the RBI stayed out of the market.

The ANZ Grindlays' head of treasury said the demand for the dollar was high as corporates are seeking to cover their forward sections and due to their regular payments. Also, the fear of a fall in the rupee will cause a rush for the dollar, he added.

Sethi, however, said the rupee's fall has been welcomed as it would make Indian products more competitive in the international market. "Not just exporters, but even industry will benefit from a weaker rupee," he said.

The RBI fixed the reference rate at Rs 37.51 as against yesterday's Rs 36.81 per US dollars, more by 60 paise.

Forex dealers said that the State Bank of India made a large amount of dollar purchases of behalf of its clients in Calcutta,which had a major impact on the rupee's value.

The rupee believed to be under pressure due to heavy selling by FIIs in the secondary market due to the worldwide turmoil in the stocks prices. The FIIs are adjusting their profits by selling their holdings in the Indian markets has also a immediate impact on the forex market, said a dealer.

The fall of rupee also affected the trend on the Indian bourses and the BSE Sensex dropped by over 59 points during the day.