The Hindu Business Line : Re surges to eight-year high

Mumbai March 28 On the back of a cash crunch, the rupee surged to an eight-year high of 43.04/05, last seen in 1999. Banks swapped dollars for rupees to meet immediate needs, giving a fillip to the domestic currency.

The rupee opened at about 43.14/15 and touched an intra-day high of 43.01/02. On Monday, the rupee had ended at 43.30. The six-month forward premia ended at 5.31 per cent (5.45 per cent) and 12-month forward premia closed at 4.04 per cent (4.15 per cent).

Rupee liquidity dried up, pushing call rates to an intra-day high of 25-30 per cent, forcing banks to borrow Rs 27,395 crore under the RBI's repo window at 7.5 per cent.

Advance tax outflows of around Rs 35,000 crore also sucked out cash from the system. With the financial year drawing to a close, banks are selling dollars in the market to meet cash requirements.

"There was huge inflow of dollar in the market as banks were liquidating their dollar positions in view of the high call rates," said Mr P. Mukherjee, Senior Vice-President (Treasury), UTI Bank.

"This level of rupee is highly unsustainable and one has to wait for the financial year to end to see the direction of rupee." Market participants said that the RBI's absence in the market implied that it was trying to tame inflation by denying rupees.

The apex bank is believed to have bought $8 billion from the forex market between November and January.

Exporters are concerned over rupee appreciation while importers are happy over the development.

Dealers said that most exporters would have covered their positions for the next six months (the forward premia has been ruling high).

Mr J. Moses Harding, Head (Wholesale Banking), IndusInd Bank, said: "Importers who had not covered their positions when the rupee touched 44 can do so now."

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