Re recovers, closes at 49.87 as RBI steps in

The rupee recovered from its lows on intervention from the Reserve Bank of India (RBI), which stepped in to soften the blow due to a huge outflow of overseas capital from Indian stocks amid global financial turmoil.

The rupee touched a low of Rs 50.28 to a dollar and appreciated to close at Rs 49.87 compared to Rs 49.98 on Friday as the central bank stepped in to sell the greenback through public sector banks in the last few minutes of trade, dealers said.

The impact of large scale exit by foreign institutional investors (FII) is weighing on the currency market. “It is quite obvious that in Monday’s scenario, only RBI is the seller,” said a treasurer with a state-owned bank. Dealers estimate that RBI has sold around $one billion in the foreign exchange market on Monday through public sector banks.
 

CURRENCY PER DOLLAR
	Jan 02, ‘08	Oct 27, ‘08	% change
Korean won	925.65	1442.75	-55.86
Pakistani rupee	60.90	81.58	-33.95
Indonesian rupiah	8985.00	10663.00	-18.68
Indian rupee	44.23	49.87	-12.74
Taiwan dollar	32.40	33.51	-3.43
Malaysian ringgit	3.53	3.59	-1.59
Hong kong dollar	7.78	7.75	0.38
Singapore dollar	1.53	1.51	1.31
Thai baht	35.41	34.78	1.78
Japanese yen	118.85	92.92	21.82

Banks also cut long dollar positions, reflecting the movement in the local share market, dealers said.

Some of the banks also squared off their positions ahead of Diwali on Tuesday, when Indian markets will remain shut. The fall in shares led to strong demand from foreign funds. The demand from some importers also kept the rupee under pressure.

“Importers are now hit by panic as the rupee is falling fast and there seems to be no limit to its fall,” said a said a dealer mid-sized bank.

The one-month dollar/ rupee futures gave up some gains in line with the spot market, dealers said. The front-end contract ended at Rs 50.1050 per dollar, compared with Rs 50.0800 on Friday. It had risen to Rs 50.1775 in early trades.

The markets are closed tomorrow on account of the Diwali holiday. On Wednesday, the rupee is expected to take cues from the movement in US indices on Tuesday.

Any fall in the US indices will be reflected in the Asian and local stock markets. If the greenback continues to stay firm against most of the Asian currencies, then banks may buy dollars and weaken the rupee further.

State-owned banks were also said to be actively entering into buy-sell swaps for RBI, thus pushing their spot dollar sales into the forward market.

In such a swap, banks sell dollars in the spot market and swap it by doing a buy-sell in the forward market.