Re dips below 47-mark on corporate dollar demand, bank short-covering

Our Banking Bureau

Mumbai, May 15: THE rupee breached the 47-mark against the dollar on Tuesday and quoted at an intra-day low of 47.02/04 on good corporate dollar interest, and continuous short-dollar covering by banks before recovering a shade to close at 46.99/47.00. The Reserve Bank of India’s (RBI) reference rate for the dollar was pegged at 47.00 as against its previous fix of 46.90.

The rupee opened the day lower by three paise at 46.99/47 from its Monday’s closing levels of 46.96/98. The forex market remained volatile throughout the day. The dip in the rupee was attributed to heavy overnight dollar short-covering by banks, spilling over to early trades on Tuesday. It is believed that the rupee will touch its historic low of 47.10 in the next few trading days.

The rupee has been under pressure for the past few trading days on increasing dollar demand, and has been falling to successive lows.

The rupee has depreciated by over eleven paise since May 8 on continued dollar demand from corporates and importers.

However, analysts are of the view that there was no external trigger to spur the market into action. What really led the brief frenzy of dollar buying, which saw the rupee fall to an intra-day low of 47.02/04 is the a demand-supply mismatch.

“Remittances for the offshore oil companies and a large export firm put pressure on the the rupee as there was no matching supply to absorb the demand. State-run and foreign banks were seen bidding for their respective clients, mostly large for the last few days. Another reason, which also largely impacted the rupee’s southward journey is the announcement of the badla and carry forward transactions ban. Immediately after the announcement, foreign banks were seen covering positions which saw the rupee’s fall on Monday. The Securities and Exchange Board of India (Sebi) on Monday banned badla and carry-forward transactions.

“The sharp fall in rupee was not entirely on any genuine corporate demand, but there was a fair amount of inter-bank speculative play,” a dealer said, adding that a few foreign banks were seen covering positions immediately after the announcement of a ban on carry forward by Sebi.

The rupee, however, stabilised later in the day on fairly good dollar supplies from corporates. Heavy dollar selling by banks due to export bookings as well as sizeable dollar supplies in the latter part of the trading sessions provided some respite to the rupee, which closed at 46.99/47.00.