The Hindu Business Line : Yuan effect on Re dissipates

THE rupee, which rose to a six-month high on Thursday on the back of the revaluation effect of the Chinese yuan, lost much of its gain on Friday as banks aggressively bought dollars in the local forex market, dealers said.

The currency closed the day at 43.50 a dollar, the pre-yuan revaluation level, against 43.20 on Thursday.

According to dealers, PSU banks were actively buying dollars, presumably at the behest of the Reserve Bank of India.

On Thursday, the RBI had issued a statement that it would follow an exchange rate policy, which "has been guided by the broad principles of careful monitoring and management of exchange rates with flexibility, without a fixed target or a pre-announced target or a band, coupled with the ability to intervene if and when necessary."

However, it failed to make an impact, as the statement came after trading hours.

According to an official at a public sector bank, Thursday's sudden spurt in the rupee was mainly on account of profit taking and was a knee-jerk reaction. "We held on to our position and have therefore not burnt our fingers."

Next week will see the rupee returning to more realistic levels, he added. Further intervention by the RBI is unlikely, according to Mr Sampath Kumar, Vice-President and Head (Treasury), IndusInd Bank.

"The yuan revaluation, which was not expected until September, came as good news for the market. The RBI may not interfere further if other Asian currencies also appreciate equally, " he said.

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