The Hindu Business Line : Rupee breaches 45 level

THE unabated appreciation of the Indian rupee continues; on Tuesday, it breached the 45-level mark touching an over 44-months high taking several market participants and exporters by surprise.

The domestic currency, which has been on an upward movement for the past 21 months, today ended at 44.87 gaining 21 paise in its value against the dollar from the previous close.

The dollar lost value against the rupee for the third straight session primarily because the Reserve Bank of India abstained from absorbing heavy dollar supplies. Continued lack of demand for the dollar from domestic corporates also contributed to the rupee's firmness, forex dealers said.

The rupee has risen by 37 paise in the last three trading days. The RBI did not step in at the 45.00-level mark much to the amazement of market participants. The next psychological barrier, when the central bank is expected to stem the rise of the rupee, is at 44.80.

Today's closing level is comparable to July 31, 2000 when the rupee had closed at 44.89. It then dipped to 49.09 levels in mid-June 2002 after which the rupee staged an 8.6 per cent gain in its value against the dollar. It has appreciated by 1.6 per cent since the start of this calendar year.

The currency opened at 45.0825/0875, which was the intra-day low and ended at the day's high. Unusually high dollar supplies by way of FII inflows into the IPOs and exporter receivables flooded the market.

Exporters were seen panic selling their future dollar receivables to convert it into the domestic currency. As the rupee appreciates, exporters suffer a loss for they get fewer rupee earnings for the X amount, the buyer will pay them in dollars.

In the inter-bank market, banks, which trade among themselves, cut short their dollar positions in the event of the unexpected sharp gain of the Indian currency.

The premia on the dollar forward opened lower today but closed at levels similar to that of Monday's levels. The six months forward contract ended the day at 0.58 per cent (0.58 per cent) and the one-year closed at 0.60 per cent (0.63 per cent).