Our Bureau

Mumbai, Aug. 24

THE rupee slid to a near three-month low on the back of a fall in foreign institutional inflows into the Indian equity markets and a strong dollar demand in the wake of firming crude oil prices.

Dealers said oil companies' heavy demand for dollars caused the rupee to touch an intra-day low of 43.7850 after opening at 43.68/69.

However, the central bank is believed to have stepped in with state-run banks selling dollars and causing the domestic currency to inch up and close at 43.73/74. The price of global crude, which touched a high of $66.34 per barrel, up from Tuesday's $65.82, prompted corporates (most of them oil companies) to go on a buying spree to meet their month-end demand. Globally, the dollar appreciated against other Asian currencies.

Mr V. Rajagopal, Chief Dealer, Forex, Kotak Mahindra Bank said, "The reason for the rupee's depreciation was three-fold a correction in the stock market in terms of FII investment, oil prices and the end of the month demand."

The rupee has been weakening over the past few days with FII investment in the country reducing to a trickle $2.20 million on Monday and $13.90 million on Tuesday. This is a reversal of the trend of huge inflows during the beginning of the month, with the week ending August 5 recording FII inflows of $ 582.7 million.

The RBI's intervention in terms of selling dollars as was witnessed today has been minimal. According to dealers, this is indicative of the fact that the rupee, which has broadly been in the range of 43.50-60, has not been under severe pressure. The RBI data indicated that the apex bank had sold $100 million in June.

In the forward premia market, the 12-month premium closed at 0.67 per cent (0.75) and the 6-month premium closed at 0.73 per cent (0.71). While the price of global crude was a concern in the bond market, domestic factors, such as a PSU buying securities, caused prices to inch up by 10 paise.

(This article was published in the Business Line print edition dated August 25, 2005)
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