The Hindu Business Line : Rupee falls; forwards spurt

The rupee fell against the dollar on Tuesday on the back of demand for the greenback. The domestic currency opened at 44.98 and closed at 45.02, lower than Monday's 44.97/98.

Dealers said nationalised banks were buying dollars. "There was month-end demand for dollars from importers. The downturn in the stock market also dampened spirits in the forex market," said a dealer at a private bank.

The rupee was also trailing the weakness of the yen against the dollar. In forwards, there was a sharp rise. Reacting to the 25-basis point hike to 7.25 per cent in the repo rate, the six-month closed at 2.13 per cent (1.82 per cent) and the 12-month ended at 1.89 per cent (1.67 per cent).

"The hike was taken as a cue for interest rates firming up and the liquidity coming under strain. Inter-bank market players began swapping dollars to improve rupee liquidity and there was demand from customers for forward dollars as well," said Mr Paresh Nayar, Chief Dealer, Development Credit Bank. RBI's mid-term review of the Credit Policy now allows FIIs to rebook a part (around 25 per cent) of the cancelled forward contracts, provided they are supported by underlying exposure.

As per current guidelines, FIIs are allowed to hedge the market value of their entire investment in equity and/or debt in India as on a particular date. These contracts, once cancelled cannot be rebooked but may be rolled over on or before maturity. Importers will now be permitted to book forward contracts for their customs duty component of imports, to help hedge against economic exposure. Customs authorities now use a fixed exchange rate for a month for the purpose of levying import duty.