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Rupee slumps to all-time low of 47.15/$ in volatile trade

The rupee hit new lows on Monday on a combination of demand from importers and building of long dollar positions by banks anticipating further demand, dealers said.

The rupee closed at 47.1450/1550 per dollar, off a record intra-day low of 47.165 and compared with Friday's close of 47.0400/0500.

The rupee hit a new closing low for the second day in a row.

The rupee's earlier intra-day low was 47.10, hit on April 17.

At its close on Monday, the rupee was one percent weaker since the start of 2001.

Dealers said the day's trade was marked by poor dollar supplies from foreign funds, apparently waiting till the impact of new stock trading rules became clearer. Exporters also held back supplies, in anticipation of further rupee depreciation and better realisations, they said.

The rupee's latest bout of weakness began last week as banks bought dollars, mainly to meet month-end demand. It tested the critical 47.05 barrier several times last week, before breaching it on Monday.

Dealers said some banks built long dollar positions once the 47.05 level was breached, in anticipation of further demand for the US currency.

Dealers said the initial moves on Monday were triggered by the position-building by banks and demand from importers, including a public sector electronics firm.

"Then, as the rupee fell, some importers which may have short-term exposures came in to cover," a dealer said.

Reduced supplies from foreign funds added to the pressure on the rupee.

Foreign funds were net sellers of Indian shares on Wednesday and Thursday after being buyers for most of June.

Their net investments up to June 28 in bonds and shares totalled $227.8 million, taking their aggregate in calendar 2001 to $2.51 billion.

Currency traders said foreign funds appeared to be on the sidelines due to new trading rules on Indian stock exchanges which came into effect from Monday and are widely expected to hit liquidity.

Foreign fund inflows could taper off till the impact of the new rules were clearer, they said.

A century-old carry-forward trading system, which is estimated to have accounted for more than 90 percent of daily turnover on Indian bourses, is banned from Monday.

Trading in options contracts made its debut while a rolling system of settlement was extended to additional stocks.

Central bank may temper volatility

Analysts were not worried much by the rupee's, saying it was overvalued by some 3 per cent on a trade-weighted basis.

"The Reserve Bank of India will standby and let the rupee depreciate as the currency is overvalued on a trade-weighted basis," V Ravikumar, head of treasury at the private sector Vysya Bank.

"The rupee will probably hit 47.40 in the next few days, as there are importers with unhedged positions and would like to cover," he added.

Traders expect the central bank to intervene if there are sharp movements.

The record level of foreign exchange reserves -- at $43.28 billion on June 22 -- also gives the central bank plenty of ammunition to defend the rupee with, if needed, they say.

Intra-day report

The rupee weakened close to its lifetime low in Monday afternoon trade on dollar buying by banks amid market talk a foreign fund was due to make a remittance overseas, dealers said.

Expectations of sustained demand had also led to some banks taking long dollar positions, they said.

At 1:50 p.m., the rupee was quoted at 47.0800/0900 per dollar, weaker than the morning's 47.0500/0600 and Friday's record closing low of 47.0400/0500.

Dealers said the buyers included a state-owned electronics firm and foreign banks which normally act on behalf of foreign funds.

Currency traders said strong foreign inflows seen from foreign funds seen earlier this month could taper off for some time as stock markets come to terms with new trading rules and practices which are widely expected to affect market liquidity.

A century-old carry-forward trading system, which at one accounted for more than 90 per cent of daily turnover on Indian bourses, has been banned from Monday.

Further trading in options contracts made its debut while a rolling system of settlement was extended to additional stocks.

Foreign funds turned net sellers on Thursday, after being net buyers for most of June. Their net investments up to June 28 in bonds and equities were $227.8 million, taking their total in calendar 2001 to $2.51 billion.

"Some exporter inflows are due later in the afternoon and the rupee should find support at around 47.08 on the lower side," a dealer with a state-owned bank said.

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