Rupee recovers from 48.43 as RBI injects $175 m

Our Banking Bureau

Mumbai, Sept 17: In a day of high drama, the Reserve Bank of India (RBI) on Monday pumped in an estimated $165-175 million to support the rupee, which sank by 63 paise in intra-day trades to a new low of 48.43 to the dollar before rallying smartly to close at 47.75.

Further, in what is perceived by inter-bank players as a move to calm the debt market and take care of liquidity concerns, if any, the central bank is to purchase four government securities (G-Sec) through an auction on Tuesday. The 10-year yield curve had moved up to 9.63 per cent on Monday from 9.18 per cent seen on September 10.

Meanwhile, late in the evening, the Federal Reserve’s decision to cut its key rate by 50 basis points to 3 per cent — the eight such effort this calendar — rose marginally with the bulk of trades having finished for the day.

In the forex market, persistent dollar demand from banks, importers and foreign funds pulled down the rupee to a new all-time low of 48.83 per dollar in volatile trades. Opening the day at 47.82, the rupee slumped to a new low as tension mounted over the fallout of expected US retaliatory strikes against Afghanistan.

However, late support from a few state-run banks who act as proxies for the RBI helped the rupee to trim some of its losses to finish at 47.75 per dollar. Large dollar sales by state-run banks in afternoon trade triggered unwinding of long-dollar positions.
According to dealers, dollar-supplies from the large state-run banks may have been on behalf of the central bank.

“The market received good support from the RBI, which has helped it to recover. The forex market will take a lead from how the Nasdaq opens after nearly a week on being idle after the terrorist attacks in the US last Tuesday,” ICICI Bank’s senior vice president (domestic treasury), Narendra Gupta said.

The forex market took comfort over the RBI’s weekend statement that it will extend support — directly or indirectly — to the rupee, if need be. RBI governor, Dr Bimal Jalan’s decision “to walk the talk” saw the rupee recover from its life-low, dealers said. At its lowest, the rupee had weakened by around 3.5 per cent against the dollar since the start of this year, compared with an average annual depreciation of 5-6 per cent.

Meanwhile, G-Secs prices recovered after the RBI announced that it will open a special window to purchase select securities through daily auction from Tuesday upto September 21. The four G-Secs that the RBI intends to buy through auction are: 11.40 per cent 2008, 11.50 per cent 2011, 10.71 per cent 2016 and 10.25 per cent 2021.

“Seeing the drop in the spot-rupee, there is still lot of uncertainty in the market, but RBI’s move to pump in dollars and on the other side open a purchase window has helped improve the market sentiment,” said 21st Century Shares & Securities Ltd’s director, AVM Sundaram.
G-Secs prices had dropped by nearly Re 1-1.50 around the weekend owing to bearish sentiment following a weak spot-rupee.