Re gains 1% to close at 44.07/$

Strong inflows sees Re touch a peak of 44.02/$.

The rupee gained almost 1 per cent yesterday against the dollar to close at 44.07 on strong trade and foreign fund inflows after touching a peak of 44.02. It last closed higher at 44.0250/0350 on May 23, 2000.

According to the treasury head of a bank, on the basis of the forward( REER), the rupee today stood overvalued at 101.79 (at any value over 100, it is overvalued).

In February it was slightly undervalued at 99.40. In March, last year, the rupee stood at 99.05 on an REER basis.

The premiums on the forward dollar rose across tenures on the cancellation of forward contracts by exporters. The firming up of the forward premiums started last week on account of both exporters' cancellation and importers' hedging of open positions.

Three-month forward premiums (annualised) rose to 1.30 per cent (up from 0.97 per cent) and six-month 0.90 per cent (up from 0.68 per cent).

The Reserve Bank of India, which had been intervening in the foreign exchange market by mopping up dollars through some state run banks, has stopped doing so since last week, with foreign funds making huge remittances for their subscriptions to public sector stocks which were put up for sale by the government under its disinvestment programme.

There has been speculation that the RBI may have refrained from intervening because of a shortage of rupee assets to undertake dollar purchases.

Another theory doing the rounds is that the RBI does not want to add to the money supply as that will stoke the fires of inflation. A section of the dealers also feels that the Reserve Bank wants the rupee to find its own level as it does not want to subsidise foreign institutional investors (FIIs). If the rupee gains, FIIs will be required to spend more dollars to pick up shares in the disinvestment programme.

The sudden appreciation of the rupee started last week when the currency breached the 45 to a dollar level. Since then it has been a one-way street for the Indian currency.

Between March 19 and now, the rupee has gained 2.47 per cent. Foreign exchange dealers have started talking about the next support level of the rupee at 43.50.