The Hindu Business Line : Rupee breaches 48 mark

Mumbai, Oct. 7 The steps announced by the financial market regulators to improve the liquidity in the system on Monday hardly had any positive impact in the forex market on Tuesday.

The rupee crossed the 48 mark to a dollar in highly volatile trade. Dealers said while dollar demand continued unabated, there was hardly any fresh supply . The rupee opened at 47.96 and touched a low of 48.15. It closed at 47.93/94, against the previous close of 47.81/82. During the day, it moved in a range of 43 paise.

The currency gained marginally in the last half hour of trade on rumours that the government may allow more inflows from foreign institutional investors, said a dealer with a private bank.

Nationalised banks were seen selling dollars at various levels, but were helpless in preventing the rupee’s fall.

“The market sentiment continues to be bearish for the rupee. Liquidity is a concern and the rupee could be under pressure for some time,” the dealer said.

“FIIs are pulling out money from India as they want to shore up liquidity in their home market,” said a chief forex dealer with a private bank.

Another reason for the drying up of dollar supply is the reduced inflows on account of buyers’ credit, pre-shipment or packing credit that exporters avail of, said dealers.

While it is difficult to predict what level the rupee may fall to, the next support could be at 48.75, said dealers.

Futures active

As the rupee depreciated in the spot market, the currency futures market on the NSE saw lot of action with the number of contracts touching 1,23,332, amounting to over Rs 590 crore. On Monday, the number of contracts were 85,536 crore worth Rs 407 crore.

Dealers said the rise in the number of contracts is due to expectations that the rupee will weaken further. But a section of the market was of the opinion that currency futures were based more on dollar’s value in the overseas non-deliverable futures market, rather than in the spot market.

In the forwards market, the premia ended in the negative due to the dollar shortage. The six month premium closed at -0.84 per cent, (-0.49 per cent), and the 12-month at -0.19 per cent (0.01 per cent).