Banks $ Urge Leads To Rupee Crash

FOREX REPORT

The spot rupee reacted sharply yesterday due to buying of dollars by nationalised banks. The local currency crossed its all-time low of 43.70 to reach a new intra-day low of 44.07 to the US dollar. The rupee closed at 44.03. Forwards did not react initially and finally dipped by 5 to 7 paise.

The spot rupee was extremely volatile, depreciating by over 35 paise. The depreciation was not as unexpected. "This was expected for some time now, but the timing was unknown," said a dealer with a private sector bank. A foreign bank dealer confirmed the same. "The pent up demand for dollars was felt and this (the rupee depreciation) was expected. The unexpected development was not the extreme depreciation but the fact that the Reserve Bank of India did not come forward with any announcement," he added.

 

"Every one was buying with nobody selling, causing an acute shortage in the market for dollars. Despite this, nationalised banks continued buying even at the day's high of 44.07," said a dealer with a private sector bank.

The volatile movements of the market spurred panic among importers, forcing them to cover losses before it was too late. Once the panic set in, the suppliers went into hiding. There was a late corporate demand as well as interbank dealings, putting pressure on the rupee.

Forwards reacted belatedly to the volatile movement of the spot rupee and fell 5 to 7 paise. The morning of the trading was extremely quiet on the forwards front, but late afternoon saw the short-end dipping by 2-3 paise and the longer end by 5 paise.

Nobody seems willing to talk about the direction the market would take today. "There is a likely strike, so the nationalised banks may be out of the market. So, whether the rupee will depreciate more or remain consistent, it is difficult to say," said a dealer with a nationalised bank.