Rupee Slumps To Low Of 44.03

The rupee yesterday lost almost 40 paise, or 0.9 per cent, to close at 44.03 even as the Reserve Bank of India (RBI) stayed away from the market. Dealers said the fall was triggered by corporate demand snowballing into frantic buying as the markets were agog with the rumour of foreign institutional investors (FIIs) pulling out dollars from the country.

FIIs sold around $100 million on Monday, and the markets expect them to convert some part of it into dollars.

The spot rupee fell way below its all-time intra-day low of 43.69 recorded on August 20, 1998_the day economic sanctions were imposed on India_and moved on to touch a low of 43.0700. The forwards reacted belatedly, to close lower by 5-7 paise.

 

Yesterday's 35 paise tumble is the single-largest fall in a day since August 1999. Dealers said the slow move to 43.70 in the morning was like testing the Reserve Bank's resolve, and once it became clear that the central bank was not intervening, the rupee quickly moved to 44 and beyond.

"The weakness is mainly due to the demand-supply mismatches in the market. There have been heavy inflows of demand from corporates," said Alok Sharma, vice- president and head of foreign exchange trading at Bank of America. The foreign institutions' dollar demand is also likely to increase further over the next few days, he said

"It is still unclear why the rupee was depreciated so much, but it is evident that it has been engineered by the central bank," said a dealer with a private bank.

Another dealer with a foreign bank confirmed this, "It was not unexpected as it seems. One has to read between the lines to see that this depreciation was on its way.

Perhaps not to this extent of over 30 paise but was still expected."

"It was like a chain reaction. First the short term forwards reacted . The effect spilled over onto the long term forwards. This led to panic buying among the importers. Everybody was buying, with no one in the market selling, leading to a mismatch in the demand and supply of dollars in the market," said a dealer with a private sector bank.