Rupee hits new low at 47.50, gilts down 30-45 paise

Our Banking Bureau

Mumbai, Sept 12: The rupee fell to a new low in the early trades on Wednesday as a reaction to the Tuesday’s terrorist attack on the US. The Indian currency dipped to 47.5000/5200 on lack of supplies and also fears that foreign funds may pull out of the stock markets, thereby increasing the demand for dollars.

"Supplies were anyway low over the past few days when the rupee was touching new lows. Yesterday’s events in the US put more fears into the market," a dealer at a foreign bank said.

"After the initial slump, the rupee received support as the State Bank of India and Bank of India were said tos be pumping funds into the market on behalf of the central bank," a dealer at a forex broking firm said.

"Oil prices are at an all-time high and impacted the market sentiment. Though demand for dollars was strong, the Reserve Bank of India was able to keep a control on it around 47.4500 levels for most of the day," the dealer said.

Markets did not react much to the remarks of RBI’s governor, Dr Bimal Jalan, that the situation on the rupee front seems to be under control. On the foreign exchange market, Union finance minister Yashwant Sinha said: "The rupee reacts on a daily basis to the laws of demand and supply, and there are problems in the supplies of dollar recently." However, he asserted that large foreign currency reserves would help the rupee to withstand the sudden shock.

In the aftermath of the terrorist attack on the US, there is increasing concern over the oil price in India. "India has long-term oil contracts and does not buy much on spot basis, so there would be no impact on the oil-import bill," Mr Sinha said. The global crude oil prices increased to over $30 a barrel after the terrorist strikes.
"Sudden surge in oil prices will not affect India in the near future as the supply contracts till November have already been firmed up. We expect world oil prices to stabilise over a period of time," Mr Sinha added.

The prices of government securities dipped in early trade as an initial reaction to the news of the terrorist attack. "Prices recovered briefly in mid-day trades as market players took support from the fact the call rates were steady," a dealer at a broking firm said, adding: "After remaining range-bound for sometime, GoI-Secs prices started dipping again as the market became a bit uncertain of the future."

"Surge in forward premiums also added fear to the already dented market sentiment," a dealer at a private bank said.

The 9.40 per cent 2012, which opened at around Rs 100.50, rose to Rs 100.76 in intra-day trades but again eased to Rs 100.46 in late trade. The 11.50 per cent 2011A opened at Rs 115.10, went up to Rs 115.25 in intra-day trades and eased back to Rs 115.10 in late trade.

Forward dollar premia moved sharply up owing to heavy inter-bank and corporate demand for forward dollars. Banks paid interest through out the day and premiums hardened across all tenors.

The activity in the forward market reflected the negative sentiment that prevailed markets across the world after the terrorist attack.

The fall in the US interest rates after the attacks depressed the sentiment in local forwards market. The benchmark six-month annualised premium closed at 4.85% while the annualised one-year premium also closed at 5.10%. In month-wise premiums, September dollar traded at 9.00/9.25 paise, while in the far forwards, January dollar traded at 85/86 paise with August dollar at 228/230 paise.