The Hindu Business Line : Rupee firms up

MUMBAI: The domestic currency closed upbeat on Friday, up by almost 20 paise, ending at 45.66/67 against the dollar. The rupee strengthened on back of ample supply of the greenback in the market, said dealers. Foreign banks were seen selling dollars heavily perhaps on account of FII inflows, they said.

"The foreign exchange market today took a cue from the stock market and thus reacted in sync with the up move in the Sensex to over 100 points. The market was driven mainly be corporate action," said an analyst with a financial services firm.

The forwards market witnessed good receiving by the foreign banks, said dealers. The six-month forward closed at 1.28 per cent (1.16 per cent) while the twelve-month forward closed at (1.23 per cent) 1.14 per cent.

"In the next few days the forwards could be in the range of 1.00-1.40 per cent, there is a possibility of hedging tools being opted for ", said a senior dealer with a private sector bank.

Volumes in the Government securities market plummeted to about Rs 500-600 crore on the back of negative sentiment following the announcement in the Union Budget regarding the 0.15 per cent transaction tax to be levied on exchange traded transactions.

Under normal circumstances, the volume in the market is to the tune of Rs 3,000-4,000 crore.

The securities, which traded in the market, were the 7.38 per cent 2015 paper, 7.37 per cent 2014 paper and a few short-end papers with a few floating rate bonds, said dealers. The deals were struck primarily through the Negotiated Dealing System (NDS), which according to dealers will not attract the 0.15 per cent transaction tax.

"The deals in the bond market are usually done on a spread of about five paise, in which the positions are squared off at two to three paise or even one paise gains. The 0.15 per cent tax translates to making a 20 paise spread on each transaction if at all a gain is to be made. This is possible only in case of abnormally high rallies," said a senior dealer from a bank.

"The central bank is already in touch with the Ministry to discuss this issue for further clarification," he added. The call rates were in the range of 4.25-4.50 per cent. Under the LAF window, the RBI received and accepted 42 bids worth Rs 11,235 crore.