Re breaches 40 on Bernanke effect

Drug exporters send SOS to government, demand urgent bailout.

The spot rupee breached the crucial barrier of 40 to a dollar following heavy inflows into the Indian equity market to close at a nine-year high of 39.88/89. Following the 50 basis point cut by the US Federal Reserve, the outlook for emerging markets, especially India, has turned bullish.

The rupee has been Asia's best-performing currency this year, climbing 11 per cent against the dollar. In May 1998, the currency had closed at 39.22 to a dollar, which was actually a deprecation from its 1991 levels of around 20.

The rupee sank to its lowest at 49.07 in 2002. More than actual inflows, the fact that capital and portfolio inflows would continue to spur the rupee higher against the dollar has influenced market sentiment, said a dealer.

According to Arun Kaul, general manager (treasury), Punjab National Bank, the breaching of the 40-mark is a reflection of the dollar's weakness against both the euro and the pound, along with actual inflows and remittances. The pound and the euro too appreciated by 2.0075 and 1.4040 against the greenback, respectively.

K Joshi, director (finance), Bharat Petroleum, said that while the robust fundamentals of the Indian economy were attracting inflows till date, the new trigger had come from the anticipated slowdown in the US economy.

The spot rupee opened higher at 40.05 after closing on Wednesday at 40.20 to a dollar. During the day, it witnessed one-way movement on the back of huge inflows into the equity market, which closed only 25 points up.

The rupee appreciation was aided by frantic selling of dollars by banks and exporters, who were caught off guard with the sharp appreciation. Banks, on the other hand, had taken long positions in dollar anticipating central bank intervention to bring the rupee to 40.30. The rupee, however, surpassed this level.

Dealers maintained that in the beginning of the trading session, public sector banks bought dollars on behalf of the Reserve Bank of India to stem the rupee appreciation, but gave up later.

A BUSY DAY
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