The turnover during 1998-99 fell to $88 billion, from $91 billion in the previous fiscal, reflecting "the decline in speculative activity following the measures announced by the Reserve Bank during June and August '98 to ensure orderly market conditions," the RBI's annual report said.

Following the fall of the rupee to its historic low of 43.69/70 on August 20 last year, the RBI had announced a rupee-support package, which withdrew the facility for rebooking cancelled contracts by importers and barred the splitting of spot and forward legs of a transaction.

The Reserve Bank, in its annual report for 1998-99, however, said that the average turnover in the forex markets remained almost unaltered compared to 1997-98. While the average monthly turnover in merchant transactions rose to $21 billion, from $18 billion, the spurt waslower at 16.7 per cent, compared with 38.5 per cent in the previous fiscal.

Merchant turnover continued to be dominated by spot transactions, which accounted for about 46 per cent, while the forward segment dominated the inter-bank with a 41 per cent share.

Forward transactions were relatively higher in the early part of 1998-99, constituting 23-28 per cent and 44-52 per cent of the turnover in the merchant and inter-bank segments respectively, reflecting the uncertainty in the forex market, which had pushed up the forward premia, the RBI said in its annual report.

Inter-linkages between the money and forex markets continued to be a significant feature of 1998-99. Excess liquidity seen in the first quarter of 1998-99 was owing to sluggish non-food credit offtake, and despite a 300 basis points reduction in the repos rate to 5 per cent by June 15, repos continued to be a profitable avenue for banks to park funds. However, with the RBI turning into a net seller (dollars) in May and June '98 to stabilisethe forex markets, there was a drain on liquidity.

Fiscal 1999 also saw the RBI buy dollars heavily from the market. In contrast to cumulative sales worth $2.5 billion during May-July 1998, the period from August 1998 to March 1999 witnessed cumulative purchases of $4.1 billion by the central bank. The net market purchase by the RBI during the year was pegged at $1.9 billion.