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Our Bureau

Climbs down from intra-day high to close tad lower

Mumbai April 4 The rupee breached the psychological mark of 43 and soared to an eight year high of 42.88/89 intra-day on strong dollar supplies. However, the rupee closed around one to two paise lower at 43.08/09 against yesterday's close of 43.07.

Mr Paresh Nayar, Chief Dealer, Development Credit Bank, said traders had cashed in on the arbitrage opportunity between offshore and onshore markets (borrow cheap dollar overseas, convert them into rupees and make money on the interest differential) resulting in dollar sales against the rupee.

"The rupee has been strengthening all through March as dollar inflows have come in through external commercial borrowings and other loans of corporates as well as FII inflows; the tightness in call rates also led to inter-bank selling of dollars. If the Reserve Bank of India does not intervene in the market, the rupee could strengthen further and appreciate to 42.50 and 42.80," he said.

The rupee's rise continues to hurt exporters while benefiting importers.

According to economists and treasury officials, the appreciation of rupee on FII inflows and domestic liquidity crunch is not warranted by fundamental factors.

"The rupee's appreciation has reduced external competitiveness of the country's exports and high inflation has pushed up input costs. This will certainly impact the merchandise trade of India," said Dr Rupa Rege Nitsure, Chief Economist, Bank of Baroda.

Overvalued

Today the rupee could not sustain the level of 42.88/89 as oil importers were seen buying dollars in the market.

"The rupee has been on a strengthening mode. Today we saw short covering by most players in the market, which pushed down the rupee to 43 levels," said Mr Ravi Pai, Head Forex and Derivatives (Treasury), HDFC Bank.

According to dealers, the rupee is overvalued by almost 10-11 per cent going by the real effective exchange rate.

Other Asian currencies such as yen have been stable; so the central bank may want to intervene in the market to reduce the rupee's volatility.

If the RBI consistently intervenes in the market, the rupee is likely to touch 44.50 in the next two months, said a senior treasury official.

Though the RBI was not seen in the market, dealers expect the central bank to act if rupee continues to strengthen further.

The six-month forward premia closed higher at 5.11 per cent (5.93 per cent) and the one-year closed at 4.11 per cent (4.56 per cent).

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