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Rupee dips against dollar

The Indian rupee dipped sharply against the greenback after hitting an intraday low of Rs 36.20 per dollar in a panic-driven interbank foreign exchange market on Wednesday.

Panic prevailed in the market resulting in hectic interbank demand coupled with corporate demand following Prime Minister Inder Kumar Gujral's view, which appeared in the section of the press, that the government would shortly fix a band to signal the exchange rate of the rupee in relation to the US dollar.

Similarly, the forward premium for the six-month dollar witnessed volatile conditions for the month of July which constantly moved up and down throughout the day, and finally settled down at the high note of 240 to 260 levels, a dealer said.

The far forward premiums witnessed a high of 4.5 to 8 per cent over the three days period, rising by 1.5 per cent, while forward premia for three months saw a high of 8.4 per cent.

The market opened on a weak note at Rs 35.78 per dollar, and saw an intraday low of Rs 36.05 to Rs 36.20 following heavy dollar demand from bank and some demand from customers. The rupee then strengthened, being quoted at Rs 35.80/85, but finally settled down on a weaker note at Rs 35.92/95 per dollar at the fag end. On Tuesday, the market closed at Rs 35.71 per dollar.

According to leading forex dealers, it was basically a speculative and panic market that resulted in depreciation of the rupee heavily for a day.

The cash to spot dollar was also quoted higher at 2 to 2.5 paise premiums and finally settled down at 2 paise towards the fag end.

On the other hand, in the overseas market, the dollar was reportedly being bought against other European currencies leaving the Japanese yen, a dealer said.

The forward premiums that were quoted higher for the day: spot August 4-5, spot/September 25-30, spot/October 45-50, spot/November 77-82, spot/December 97-102, spot/January 125-130 and spot/February 143-148 paise premiums respectively.

Meanwhile, the Reserve Bank of India has denied reports appearing in a section of press that the Indian government would shortly fix a band to signal the exchange rate of the rupee in relation to the US dollar.

The report is misleading, a RBI release said on Wednesday.

The RBI clarified that while the committee on capital account convertibility had recommended a band in relation to a neutral real effective exchange rate, no decision in this regard had been taken by the government and the RBI.

While market forces will continue to determine the exchange rate, the RBI felt that exchange rate management would have to balance the needs of exporters to have a favourable exchange rate and the need to prevent monetary expansion from going beyond what was considered appropriate for maintaining price stability.

UNI