The spot rupee opened stronger on Monday at 42.15-17 after closing at 42.76 to a dollar last week. It, however, slipped later in the day to close at 42.42 against the US currency, but still stronger than the last week's close.
According to dealers, the rupee opened on a bullish note following an improvement in the sentiment and it was not due to foreign exchange inflows into the market.
The sentiment improved after the Reserve Bank of India (RBI) announced a special window for oil companies to purchase dollars from designated banks at market-determined rates.
The RBI facility will aid oil marketing companies like Indian Oil Corporation, Bharat Petroleum and Hindustan Petroleum, which have been heavy buyers of dollars in the market to meet their higher payment outgo, and may prevent the rupee from depreciation.
RBI's announcement to provide dollars directly to oil companies needs further clarification before the news can get further discounted in the market as a positive trigger, said a dealer.
Also Read
The rupee slipped later in the day because foreign banks started buying dollars on behalf of their custodian (foreign institutional investors) clients. High oil prices and inflation have marred the sentiment in the equity market, leading to FIIs booking profits. The BSE Sensex fell 2.51 per cent or 352 points on Monday.
Even if FIIs remain bearish on the Indian market, fresh inflows are expected from Indian companies, which have been allowed to borrow more dollars for their rupee expenditure under a more liberal external commercial borrowing (ECB) window.
On Saturday, the government announced relaxation for service sector companies through the ECB route and the decision was notified by RBI on Monday.
The cost of the rupee premia to be paid for booking forward dollars, however, remained range-bound since there was neither heavy dollar buying by oil companies nor dollar selling by companies in the forward market.
The annualised premia for six-month and one-year forward dollars closed at 1.69 per cent and 1.48 per cent respectively compared with 2.26 per cent and 1.76 per cent respectively.
Oil marketing companies have been heavy buyers in recent months also due to the tight liquidity situation on account of their inability to raise the price of petroleum products.
While the cost of crude oil for Indian refiners fell to $123 a barrel on Friday, India's oil import bill in April was estimated at $8.03 billion compared with $8.6 billion in March.
The average Indian basket rose to $105.77 a barrel in April compared with $99.76 in March 2008, according to the data compiled by NewsWire18. The average cost of crude oil for Indian refiners has increased from $62.46 a barrel in 2006-07 to $79.25 in 2007-08.