Rupee slides 1.2%, closes at 49.23

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Weak sentiment in domestic market, global banking woes put pressure on the currency.

The rupee slid by more than 1 per cent On Tuesday as the US dollar gained in strength against the international currencies and the reduction of equity holding by overseas portfolio investors.

Besides the global financial slowdown, the problems faced by the British banking entities have influenced the values of global currencies. Plus, the sentiment in the Indian stock market has turned weak as domestic companies are reporting pressure on margins and slowdown in demand. All these factors weigh on the rupee’s value, dealers said.

The rupee slid 1.2 per cent to 49.23 per dollar at 5 p.m., according to data compiled by Bloomberg. All the 10 most-active Asian currencies outside of Japan fell against the dollar On Tuesday. Indonesia’s rupiah led the slump, with a 2.3 per cent loss.

Foreign institutional investors (FIIs) continued to be net sellers this year. “Stock market moves and the dollar’s move against G7 (Group of Seven) and Asian currencies continue to dictate the rupee’s direction,” the head of treasury with a new private bank said.

Last week, FIIs sold equities worth $481.6 million — more than they bought — according to data from market regulator Securities and Exchange Board of India. On Tuesday, the dollar rose to a near seven-year high of $1.3933 against the pound sterling, while it also gained around 1 per cent against the euro.

The rupee is likely to weaken as risk aversion appears to be on the rise again across markets, said a foreign-exchange trader at a state-owned bank in Mumbai. Regional stocks and currencies are down and the dollar is in demand as events in England (like problems faced by Royal Bank of Scotland) have undermined investor sentiment.

Forward premiums ended down after moving in a narrow band for the major part of the trade because some exporters sold forward dollars. Large positions were also shunned ahead of the third quarter monetary policy review by the Reserve Bank of India on January 27, dealers said. The benchmark one-year forward premium ended at 1.84 per cent, compared with 1.87 per cent on Monday.

In the futures market, one-month dollar/rupee contract ended up at 49.21 per dollar as against 48.71 yesterday on the National Stock Exchange. It’s in line with trend in the spot rupee market, where most banks bought the greenback noting its gains globally.

Call: Ends down Call money rate ended down On Tuesday as there was ample cash supply in the system to meet banks’ reserve needs, dealers said.

The one-day call rate ended at 4.25-4.30 per cent compared with 4.35-4.40 per cent on Monday.

CBLOs ended at a weighted average rate of 3.93 per cent compared with 3.99 per cent on Monday. “Yesterday (Monday), banks had to park Rs 43,200 crore of excess cash at the Reserve Bank of India’s reverse repo tenders at 4.00 per cent. Therefore, call rate opened down On Tuesday as a reflection of ample liquidity in the banking system,” said a dealer at a state-owned bank.
 

HEADING SOUTH
Currency /$	Jan 1, ’09	Jan 20, ’09	% change
Korean won	1,259.55	1,374.52	-9.13
Indonesian rupiah	10,875.00	11,210.00	-3.08
Pakistani rupee	79.05	80.15	-1.40
Indian rupee	48.77	49.23	-0.95
Thai baht	34.78	34.97	-0.55
Singapore dollar	1.43	1.51	-5.19
Taiwan dollar	32.82	33.65	-2.54
Hong kong dollar	7.75	7.76	-0.12
Japanese yen	90.74	90.38	0.40

On Tuesday, banks parked Rs 49,225 crore at RBI’s twin reverse repo tenders.

Dealers attribute the huge subscription at the central bank’s reverse repo tenders to government spending at the beginning of the Reporting Fortnight and the cut in banks’ Cash Reserve Ratio coming into effect.

Inflows of around Rs 15,000 crore have entered the system after Food Corp of India repaid part of its loans to banks, dealers said.

Some dealers said reduction in banks’ Cash Reserve Ratio has also cut demand for funds in the call money market.

RBI’s 50-basis-point cut in CRR, announced on January 2, took effect on Saturday and released Rs 20,000 crore into the banking system.

“Reduction in CRR means banks have to keep less funds with RBI as reserves. Therefore, demand for funds has fallen to that extent,” said a dealer at a state-owned bank.