With forex mart short, RBI runs random checks on dealers

The Reserve Bank of India (RBI) is learnt to be taking a look at the foreign exchange market which is sitting short. This is despite the rupee closing yesterday at a four-and-a-half month high of 45.38 per dollar and the market turning bullish owing to the landmark decision of the Chinese authorities to hike interest rate.

According to forex dealers, the RBI ran random checks on dealers following the sudden spurt in rupee after opening at 45.53 and its volatility later on.

The checks on banks revealed perfect match between demand and supply, sources said.

However, anticipating greater inflows in the coming days from foreign portfolio investors, mutual funds, trusts and exporters, the inter-bank players have sold dollars and are running short positions, they said.

The inflows into India is also fuelled by arbitrage opportunities in the southeast Asian non-deliverable forward market (NDF) and Indian forward market.

Banks, on behalf of the corporate clients, are understood to be buying forward dollars in NDF market to invest in India. This is because one-year dollars are available at 46.58 in Indian forex market while the same is ruling at 46.40 in NDF market.

Dealers said, this was a random check by the RBI to check the real reason for the rupee rise. "Usually such checks are made when the dollar rupee movements are bit erratic and belie the fundamentals" said a dealer.

Dealers are of the view that the rupee dollar exchange rate is heading towards settling at 45.10-20 within a month.

With Chinese demand slowing down, oil prices will start moderating and so will be the Indian inflation rate. This will again reinforce the Indian growth story and thus bringing in dollar inflows as part of investment, said a forex dealer.

On the other hand, the recently released GDP data from US is also disappointing which will add to dollar bearishness. Explaining the dollar bearishness on the face of Chinese demand slowdown, forex analysts said the appreciation was triggered by global depreciation of dollar overseas which was seen as a paradox.

Dealers explained that after Chinese authorities increased the interest rates to 5.58 per cent, metal prices crashed on apprehension of slowdown in demand and funds shifted to dollar assets. This ideally should have made sentiment on dollar bullish.

Its not. On the other hand, Chinese central bank authorities are learnt to have sold US treasuries and put the dollar into Japanese bonds instead, said forex market dealer. Japanese yen appreciated against the dollar from 107.50 to 105 levels.

This pulled down the sentiment on dollar which in turn depreciated to all other major currencies ranging from the euro, pound sterling to Asian currencies alike.