Financial Express: Rupee rebounds on Jalan prescription

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Rupee rebounds on Jalan prescription

Our Banking Bureau

MUMBAI, Aug 21: The spot rupee gained 25 paise, forwards across all maturities firmed up, gilts prices tumbled and overnight call rates zoomed to 40 per cent before closing at 10 per cent on Friday in response to the Reserve Bank of India's rupee-support package. RBI governor Bimal Jalan on Thursday launched a multi-pronged attack to keep speculators at bay and suck out liquidity from the system after the rupee touched a low of 43.70 against the dollar.

The rupee climbed up against the greenback for the second consecutive day, closing at a week's high of 42.55/60. Forward premiums inched up as the Reserve Bank and the State Bank conducted swaps worth $100 million for September.

The Reserve Bank as also the State Bank unleashed an attack on the forward rupee by conducting swaps for September maturities, driving near-term forwards up. September premiums went up to touch a high of 22 per cent, before falling to close the day at 16.30 per cent. "The Reserve Bank and the State Bank are jointly trying to entice exporters to come and sell at these attractive rates by paying. It is a gamble and is likely to pay off, creating supply of dollars in the forward market," a corporate treasurer in a private-sector oil company said.

One-month forward premiums (annualized) closed at 20 per cent, up from 19 per cent on Thursday. It touched an intra-day high of 25 per cent. Six-month forward premiums touched 12.66 per cent, while one-year premiums closed at 12.26 per cent. Cash/spot premiums rose to a high of 30 per cent on the back of high call rates witnessed during the day, dealers said.

In the inter-bank call-money market, call rates opened higher at around 15-25 per cent from overnight levels of 9.50-10 per cent and shot up to over 40 per cent on heavy demand for funds. Lenders were reserved and reluctant to part with funds at lower rates. Higher rates, however, could not be sustained. The rate fell to 9-10 per cent at close, dealers said.

"Banks that were short of dollars need rupees to buy greenbacks to cover in the forward market," a dealer in a trading bank said. This led to tightening of rates as lenders played truant and drove up rates.

"There was excess money in the system. This went out as soon as call rates fell to around 10 per cent at close," a treasury dealer said.

The secondary market for securities was moderately active. Prices fell by around 80-90 paise across all maturities owing to renewed selling pressures. It recovered by 40-50 paise at close on Friday. Higher call rates between 35 per cent and 40 per cent saw banks selling gilts to create liquidity.

"Active trades were witnessed in the short-term 11.55 per cent 2001 and 11.75 per cent 2001. The 11.55 per cent 2001 recovered to trade between Rs 99.25 and Rs 99.50, up from Thursday's close of Rs 99," dealers said.

The National Stock Exchanges wholesale debt segment witnessed trades worth Rs 319.80 crore, lower from the previous day's Rs 336.25 crore. The 11.75 per cent 2001 saw trades worth Rs 77 crore at a weighted yield of 11.99 per cent.

Term-money market

The moribund term-money market sprang back to life on Friday, after the inter-bank call rates touched an intra-day high of 40 per cent. The market which has been lacklustre -- as call rates are low and banks are comfortable on the liquidity front-- witnessed a day of busy deals as banks struck deals to cover themselves for the next 10 to 15 days. "Banks were striking deals at 13-15 per cent for 15-day money," a primary dealer said.

He said the market would continue to see activity on Monday, as banks are still unsure about interest-rate movement in the short term. Dealers said with the term-money market showing signs of revival, banks were unlikely to put in any money at the 14-day T-Bill auction, despite the Reserve Bank hiking the yields.

Net Express

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