Jitters Perforate Spot Rupee, Premiums Pull Up

The spot rupee closed at a new low of 47.4350/44 today, falling for the fourth consecutive day. It had closed at 47.42/4250. The Indian currency earlier during the day fell to an all time intra-day low of 47.50. Forward premiums went up on the back of a probable rate cut by the US Fed.

The spot rupee opened weak around 47.43 level in the morning and weakened sharply within few hours of the day to touch 47.50. The rupee, however, strengthened during the day as the supply from the state-run banks led by State Bank of India streamed in, a forex dealers said. Dealers felt that the state-run banks were acting on behalf of the Reserve Bank of India (RBI).

A dealer with a private bank said, "The currency fell mainly because of panic but as the nationalised banks came to its rescue, it stabilised gradually." A dealer with a nationalised bank said, "The oil price which shot up to $30 per barrel yesterday also came down today and helped the rupee recover."

Forward premiums which eased down yesterday went up once again today. The 6-month premium closed at 4.68 per cent against yesterday close of 4.66 per cent while the one-year premium went up to 4.89 per cent against yesterday's 4.80 per cent.

A dealer with a nationalised bank explained "Fed may cut the rate as the terrorist attack may aggravate the recession further, and on this account premiums rose."

The spot rupee is likely to remain stable tomorrow backed by dollar supply from the state-run banks. A dealer with a foreign bank said, "There is still some panic in the market. But from today's experience it seems that the RBI does not want it to go below the 47.45 mark. In that case, even tomorrow we can see little bit of weakening of rupee in the morning and the dollar supply from the nationalised banks pushing it back."

Forward premiums may continue to go up, but dealers said lot will depend upon how the other currencies and financial markets are moving in the aftermath of the US crisis.