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August 12, 1998

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Rupee touches all-time low; RBI checks crash, Rs 42.95/43.05

Rs/$ rate The Indian rupee today sank to an all-time low of Rs 43.35 against the US dollar in a volatile interbank foreign exchange market following heavy speculative buying of greenback by corporate sector as well as treasury managers of leading commercial banks.

According to leading bankers in Bombay, the rupee's fall was largely due to political uncertainty at the Centre coupled with the currency crisis in the far-east markets. They said that the currency may fall further tomorrow depending on the intensity of the Reserve Bank's intervention in support of the rupee.

Today, the Central Bank pumped in about $ 30 million to check the free fall of Indian currency which after touching a record low of Rs 43.35 in the afternoon, recoiled back to close at Rs 42.95/43.05 per dollar.

Political uncertainty arising out of All India Anna Dravida Munnetra Kazagham general secretary J Jayalalitha's threats to withdraw support to the Union government over the Cauvery river water sharing dispute at the Centre and worries about Asia's economic crisis and slumping equity markets disappointed the corporates, which feared further fall of the rupee and resorted to hectic dollar-buying spree, pushing the rupee to the all-time low of 43.35 level in the intra-day transactions.

However, the RBI intervention in the market rescued the sinking rupee and helped it to recover partially to close at a wide range of Rs 42.95/43.05, dealers said.

Dealers said that if the RBI did not intervene, the rupee would have fallen further on continued dollar demand from the panic-stricken corporates who do not want to take a chance under the uncertain political and economic situation.

Dealers said that the rupee quoted the lowest level of Rs 43.30/35 in the afternoon. It broke the 43.00 level at 1320 hours and, after hovering at the Rs 42.96/99 level, the rupee saw a higher level of Rs 42.85 before closing at Rs 42.95/43.05.

Mecklai and Mecklai Financial Services senior vice president K N Dey said that the rupee will be still bearish and a new low can be expected in the coming days. He attributed the weakening of Indian rupee to the uncertainty prevailing in the Asian market and the possible devaluation of Chinese yuan in view of slide in Japanese yen against the US dollar.

Dey said that the RBI cooled down the market sentiments by resorting dollar sales but there are certain limitations of such selling and the rupee may fall further, he added.

The statement made by Chinese ambassador Zhou Gang in India that China will be forced to devalue its currency yuan if the Japanese yen and other southeast Asian currencies continue their free fall also created some panic in the market. For, there was another statement from the Chinese ambassador in Tokyo saying that his country will defend its currency and will not devalue despite rising concerns over a possible devaluation.

Speaking at a meeting organised by the Federation of Indian Chambers of Commerce and Industry in New Delhi, Gang agreed that there was a heavy pressure on the yuan because of the devaluation of the southeast Asian currencies and Japanese yen.

Political uncertainty over the Cauvery river water sharing dispute also added fuel to the panic-stricken market, dealers said.

It may be recalled that in the spot market, the rupee had touched the lowest level of Rs 43.00 on June 23.

Meanwhile, the forward premia also rose sharply on the paying pressure due to heavy import booking by merchants. The public sector undertakings also booked imports considerably. The corporates also followed their suit, dealers said.

The third month premia closed at 8.90 per cent from 7.27 per cent, sixth month premia ended higher at 9.02 against yesterday's close of 8.20 per cent while the yearly premia finished at 9.58 per cent from 9.02 per cent.

The forward premia in paise were quoted at 13/15 for August, 46/49 for September, 80/84 for October, 113/117 for November, 146/150 for December, 179/183 for January, 210-214 for February, 248/252 for March, 320-324 for April, 355/360 for May and 392-397 for June.

Elsewhere, the RBI fixed the reference rate for the US dollar at Rs 42.94, lower by 23 paise against the previous day's rate of Rs 42.71 per dollar.

In the overseas market, the US dollar edged lower early Wednesday amid speculation about possible intervention to support the yen. According to a Tokyo report, the dollar bought 147.16 yen in early trading, down by 0.25 yen from late Tuesday in Tokyo and also below its late New York rate of 147.35 yen overnight.

In the local market, the Indian rupee was traded in the range of Rs 70.15-70.06 against the British pound. The Indian unit quoted in the range of Rs 24.18 and Rs 24.28 against deutsche mark while it moved in the range of Rs 29.41-29.66 against the Japanese yen.

UNI

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