The Hindu Business Line : Rupee sheds 70 paise

The domestic currency opened weak at 43.25/26, touched an intra-day low of 43.80 and closed the day at 43.76.77 — around 70 paise lower than its previous close.

Forex dealers said the rupee retreated as banks, which had gone short (selling dollars without having them), began covering by buying dollars. The RBI, which had been on the sidelines, also made its appearance and purchased the greenback. There was also some importer-related demand from oil companies, traders said.

In the past one week, the rupee had been steadily gaining against the dollar, buoyed by an acute rupee-shortage with call rates zooming to 60-75 per cent levels. Dealers were expecting a correction, which came faster than expected.

The easing of call rates and liquidity conditions were expected to pull down the rupee. Call rates on Thursday closed at 10-11 per cent and banks borrowed Rs 17,865 crore from RBI's repo window at 7.5 per cent. On Wednesday, banks borrowed Rs 27,395 crore from the central bank.

"Banks were going long on dollars as the correction in the rupee's appreciation was expected and represented a trading opportunity," said Mr R.V.S. Sridhar, Vice-President (Treasury), UTI Bank.

"The interest rate differential between rupee and dollar funding which has been ruling at 15-20 per cent, driven by high call rates is expected to soon disappear," added Mr Sridhar.

Traders said some foreign banks were also unwinding their swaps (selling rupees for dollars).

The RBI is believed to have purchased a total of $20 billion in the last four months ending February, said an analyst.