Rupee recoups losses as banks cut long positions

MONEY MARKET ROUND-UP

Rupee recouped most of its intraday losses today as banks cut long dollar positions after dollar purchases by state-owned banks for the Reserve Bank of India eased, dealers said.

Rupee ended at 40.4950 per $1 compared with 40.3850 Wednesday. Intraday, the unit touched a low of 40.7400.

"A sudden dollar demand from nationalised banks dragged the local unit down drastically to 40.74 levels," said a dealer with a private bank.

"PSU banks were buying dollars continuously and their buying was more aggressive than normal days," said a dealer at the UK bank.

Banks panicked as stop losses were triggered leading to widespread demand for dollars, dealers said.

Though exporter dollar sales below 40.74 helped rupee recoup losses, the local unit could not rise as dollar buying by the government-owned banks persisted."They were buying dollars above 40.50," said the dealer at the UK bank.

FORWARD MARKET
Premiums ended up as banks bought forward dollars fearing possible liquidity draining measures by RBI.

Demand for forward dollars on the back of such worries reduced the discount on the one-month forward premium.

It ended at a discount of 0.6 per cent compared with 1.12 per cent on Wednesday. The one-year premium ended at 2.03 per cent annualised, compared with 1.83 per cent on Wednesday.

"Some companies were also hedging their balance sheets," a dealer said.

The premiums are expected to further rise on Friday as fears of liquidity tightening steps heighten.