RBI lifts Re, says FIIs can buy $ directly from it

Task force set up to monitor development in markets

The Reserve Bank of India (RBI) today stepped up intervention in the foreign exchange market to lift the rupee to 45.50 per dollar at close on Monday, after it had fallen past the 46 mark.

It also said that foreign institutional investors (FIIs) can buy dollars directly from the RBI (through authorised dealers) in off-market deals to ease the pressure on the market. Traditionally, such arrangements are made for the government-owned oil companies.

The apex bank is understood to have sold close to $400 million in the market today and issued a statement saying it will "continue to sell dollars through agent banks in order to augment supply in market or intervene directly to meet any demand supply imbalances".

In a statement earlier, the RBI said that it was closely monitoring the developments in the markets and stands ready to provide sufficient liquidity to the banks for meeting all their payment obligations including for any intra-day requirements.

It also constituted a task force under the executive director, financial markets committee, Shyamla Gopimath, to monitor the market developments.

The RBI statement said: "The FIIs will no doubt continue to take their decision in regard to reducing or increasing their stake in Indian equity markets. While RBI welcomes these flows, it will also like to ensure that those FIIs who wish to reduce the investment can do so as easily as possible at prevailing market rates."

It also said that the banks acting on behalf of FIIs are free to approach the RBI to procure foreign exchange at prevailing market rates depending on conditions.

"RBI would either sell the foreign exchange directly or advice the concerned bank to buy in the market," the statement said.

The need for RBI intervention, through sell-buy swaps came up as the equity market witnessed the worst ever fall in the wake of massive selling by foreign institutional investors (FIIs).

Forward dollars, which were reeling at discount for a long time, have started entering into premium zone as interbank positions were cleaned up through stop-loss moves.

Bankers are of the view that forward dollars will come back to premium as outlook on spot rupee is bearish which will induce the importers to take cover for their payment obligations.

The bond market on the other hand, witnessed a fall with the ten year benchmark 7.37 per cent 2014 touching 5.28 per cent as against a close of 5.18 per cent last week.