The rupee fell to its all-time low when it touched 50 per dollar intraday after local shares plunged 11-12 per cent to their three-year lows in keeping with falling markets everywhere from Tokyo to New York.
Forward premium shot up after the Reserve Bank of India (RBI) left key interest rates unchanged and also as the spot rupee plumbed new lows.
The rupee closed at 49.95 per $1, against 49.83 per $1 on Thursday. In the morning trade, it fell to a low of 50.15 per $1 as markets braced for steep fall in share indices.
Apparent dollar sales by the RBI helped the rupee close above 50-a-dollar mark, but most currency traders say the central bank won’t be able to keep the rupee above 50 for long. The 1-year forward premium closed at 1.68 per cent, against 0.45 per cent on Thursday. “The action of the day was in forwards,” a dealer said. “The other action of course was in the stock market.”
“Everybody was expecting a cut in repo rate. But, as RBI decided to keep the rates unchanged, most banks bought forward dollars,” said a dealer with a US bank.
Some importers also bought forward dollars fearing a further fall in the spot rupee, dealers said.
“Premiums steeply rose on Friday as banks started unwinding their positions as most players were expecting a rate cut but that failed to happen on Friday. Some importers also came to hedge their positions after rupee crossed the 50-mark,” said a dealer with an Asian bank.
Forex reserves dip
The country’s foreign exchange reserves dipped by $118 million to $273.88 billion for the week ended October 17. The dip was mainly because of a revaluation of currencies and intervention by RBI, which sold dollars to support the rupee.
