Rbi Rap Stabilises A Careening Currency

The rupee fell sharply yesterday, touching an intra-day low of 44.75. Forwards reacted in a similar fashion, falling over 20 paise; but recovered to close at Wednesday's levels.

The rupee had a volatile day, opening at 44.05, drifting to a low of 44.75 against a high of 43.9550. It finally settled at 44.10, reacting to Reserve Bank of India's (RBI) statement that it is a temporary imbalance and a result of mismatches in demand and supply of dollars.

RBI governor Bimal Jalan said in a statement, "We are not issuing any measures but are just clarifying the RBI's position on the rupee movements." "This is a temporary imbalance that could be caused owing to mismatches in demand and supply of dollars. Forex reserves are at a reasonable level, and the RBI will sell directly or through the State Bank of India if the need arises," he said.

 

The RBI has decided to impose a 50 per cent surcharge on import finance and 25 per cent interest on overdue export bills as a temporary measure to yesterday's volatility. The RBI statement highlights the fact that it is a temporary imbalance that can be rectified, once the whole furore of speculative buying dies down. As per the RBI circular, the reference rate for the dollar as on Thursday is Rs 44.29 against Rs 44.08 of Wednesday.

Moving in tandem, the forwards reacted sharply to the dip in the rupee, falling over 20 paise. They, however, recovered to close at Wednesday's levels before the day was over.

"Throughout the day, the forwards tracked the spot rupee, reacting volatility, and recovering sharply, after the RBI's announcement," said a dealer with a private-sector bank. The spot rupee is expected to remain rangebound between 43.25 and 43.30, post RBI announcement. The forwards are expected to move in tandem with the movements of the spot rupee.