Reserve Bank Mops Up $200 Million To Stem Rupee Rise

The Reserve Bank of India (RBI) stepped up its intervention in the forex market yesterday and mopped up around $200 million nudging the rupee to an intra-day low of 35.855. The tightening of the money market has given the apex bank elbow room to intervene in the forex market without fear of an inflationary liquidity overhang.

RBI entered the market in the morning when rates were at 35.78. With yesterdays intervention, the RBI is expected to have mopped up over $350 million in the last couple of days.

The intervention had the desired effect and the rupee closed at 35.83-84, four paise lower than the previous days close of 35.78-79.

 

In the forward segment, good receipts by exporters kept premia steady despite high call rates, with the six month annualised closing at 5.24 per cent as compared to 5.3 per cent the previous day.

Following the intervention in the last couple of days, the RBI have infused over Rs 1,200 crore into the money market.

The money market expects that this will have the effect of improving the liquidity position. If RBI continues to prop up the dollar, the corresponding increase in liquidity will smother the call rates. The interest rates in the inter-bank overnight money market should stabilise at around 5 to 6 per cent, said a primary dealer. Based on this expectation, the prices of government securities especially the short- and medium-term ones went up by 10 to 30 paise. There was not much activity among the long-dated securities.

Market sources were anticipating the intervention by the RBI as the excess liquidity in the system had been absorbed over the last week by the governments borrowing programme.

The RBIs forex policy which is aimed at avoiding exchange rate volatility was reduced in intensity.

Analysts felt this was on account of the resultant infusion of rupees in a banking system that was already flush with funds. The money supply target has been set at 15.5 per cent this year.

For over two weeks, the rupee hovered around 35.75-76 and the forward premium at around 4.5 per cent as the RBI kept away from the market.

However, the present tight liquidity situation has provided leverage to the RBI to intervene in the market. The intervention is expected to continue for sometime.