The Hindu Business Line : Re on downward spiral breaches 41 level

The Indian currency has depreciated by around Rs 1.20 since the annual review of the monetary policy on April 29, the day the rupee began its downward journey.

The domestic currency opened on Wednesday at 41.03/06 and touched an intra-day low of 41.41. It finally ended the day at 41.35/36, against the previous close at 40.96.

Oil demand

While there was some oil related demand from importers, market participants said that foreign banks were heavily buying dollars to take advantage of the arbitrage opportunity in the offshore, Non Deliverable Forward Market (NDF).

The one-month delivery rupee in the NDF market was at 41.58 against the dollar at close.

“The rupee’s fall on Wednesday was more because of panic feeding on itself. In the short term, the rupee could ease to 40.80-40.90 but the negative bias is likely to continue on account of India’s high current account of deficit,” said Mr R.V.S. Sridhar, Senior Vice-President (Treasury), Axis Bank.

Meanwhile, the price of global crude continued to boil at $122 per barrel at the New York Mercantile Exchange. There were rumours that the price could spike up further to $125 per barrel by Friday, due to the expectation of a fall in US inventories.

“While there has been heavy demand for dollars, supply has been low in terms of FII, FDI and ECB inflows. The exporters have already sold their dollars in the market,” said the treasury head at a public sector bank.

Premia in the forward market firmed up, as importers were buying forward dollars since the rupee depreciated sharply in the spot market.

The 6-month closed at 1.79 per cent (1.63 per cent) and the 12-month ended at 1.51 per cent (1.44 per cent).

Non-intervention

Market participants were, however, intrigued by the RBI’s absence in the forex market, given the central bank’s stance of intervening to prevent volatile movements in the exchange rate.

“If the RBI intervenes by selling dollars in the market, it would also aid in liquidity management,” said a forex dealer at a private bank.

The surplus cash in the system under the liquidity adjustment facility of the RBI was around Rs 49,505 crore on Wednesday.

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