The Hindu Business Line : Re loses 12 paise

SPECULATION over the `real value of the rupee' drove the currency to end at an all-time low at 48.52/53 per dollar, weaker by about 12 paise from the previous close of 48.41/42 in a volatile forex market on Wednesday.

The rupee opened weaker at 48.43/44 and during the session fell to an intra-day low of 48.62/63 (the lowest intra-day level was on September 17, 2001, when the currency fell to 48.43) before recovering at close.

The currency had been fairly stable and range-bound in the past month, despite being under pressure to some extent by "border tensions," on account of good dollar supplies in the market. Forex reserves are also close to crossing the $50-billion mark by March this year. This was a fairly comfortable position, according to analysts.

However, there has been a perception for sometime now that as per the Real Effective Exchange Rate (REER) calculations, the rupee is overvalued by around 2.5 to three per cent. This, coupled with negative export growth, is a case for a weaker rupee, analysts contend.

The rupee has been in the range between 48.25 and 48.42 this past month. On Tuesday, the rupee weakened to close at 48.42 on the back of the usual month-end `short covering' by banks and of demand for dollars to meet the payment requirements of some petro companies, according to forex dealers.

This apparently was the trigger point that set off dollar buying across the board by nationalised banks on Wednesday, which took the rupee down to 48.50 levels.

At this point, foreign banks seized the opportunity and there was some speculative demand for the greenbacks. Importers started panicking and started mopping up the dollars and the rupee fell to an intra-day low of 48.62/63, said a forex dealer with a private sector bank. "The RBI may have intervened at these levels although it is hard to say for sure. State Bank of India stepped in and took the lead among nationalised banks to sell dollars, eventually propping the currency to its closing levels," said a forex dealer.

It is felt that the rupee is unlikely to strengthen further in the near term.

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