Eefc Fillip Failed To Prop Sentiment

The Reserve Bank of India's (RBI) dictat on liquidation of 50 per cent of outstanding Export Earners' Foreign Currency (EEFC) accounts has failed to prop up sentiment, dealers said.

The directive has helped keep the rupee range-bound between 46.00-45.80 for a short-term but not much is expected from it in the long run.

Dealers are of the view that unless the rupee gains substantially on the back of dollar inflows, the market sentiment will remain the same. The deadline for liquidation of EEFC accounts expired yesterday but the impact was not seen much on the spot, as inflows fall short of market expectation.

 

However, even though net inflow on account of the EEFC account was not up to the expected level of $1 billion, foreign institutional investor inflows has to some extent saved the rupee from falling further, dealers said.

"Since the RBI is not targeting any fixed rate, there is an additional insecurity regarding the supply position. The sustainability of the stability of the spot rupee is still on shaky grounds because the demand for the dollar is still high," said one dealer.

N Subramanium, forex consultant, E-mecklai, said that exporters will sell if the rupee remains range-bound between 45.60 and 45.80. He further stated that the success of the directive depends on the tenure for which the rupee will remain stable.

The directive has helped in the short run but the sustainability is yet to be seen. RV Sridhar, chief dealer at UTI Bank, was of the opinion that there were no major inflows to the extent the market expected. The spot rupee is still shaky and there is not too much impact on the exporters' accounts. The rupee is still on a gradual decline and the only time it appreciated was immediately after the directives were announced.

The directive has helped on keeping the pressure off the rupee to some extent. But the underlying demand is still insatiated assuming that all that has been locked is sold, said N Venkatraman, sub-regional treasurer, Deutche Bank.

EEFC directives have helped stabilise the falling rupee. If they had not happened the rupee would find it hard to hold ground but the underlying pressure due to demand still exists, said Surendra Rosha, head of corporate treasury, Hongkong Bank.