The rupee pared its early gains and but still strengthened to close at 47.78 against the US dollar compared with 47.92 yesterday.
The currency opened stronger at 47.53 against the greenback and hit a high of 47.27 at 9.55am, the highest level since mid-December. But dealers said, due to heavy intervention by the Reserve Bank of India, the Indian currency hit an intra-day low of 47.95 around 4pm, before gaining again.
“It was a continuation of yesterday’s trend. The stock market has turned the tide for the rupee,” said P V Rao, head of forex trading at IndusInd Bank.
In addition, Asian currencies such as the Korean won and the Indonesian rupiah also posted gains. The rupee gained 2.98 per cent yesterday, the highest single-day rise in 23 years, pushing the exchange rate through its 200-day moving average for the first time since April 2008.
| CURRENCY PER DOLLAR | |||
| May 18, 09 | May 19, 09 | % chg | |
| Indonesian rupiah | 10,404.00 | 10,296.00 | 1.04 |
| Malaysian ringgit | 3.56 | 3.53 | 0.86 |
| Korean won | 1,259.35 | 1,249.25 | 0.80 |
| Thai baht | 34.53 | 34.40 | 0.38 |
| Taiwan dollar | 32.99 | 32.86 | 0.37 |
| Indian rupee | 47.92 | 47.78 | 0.31 |
| Japanese yen | 96.30 | 96.06 | 0.25 |
| Singapore dollar | 1.463.00 | 1.462.00 | 0.05 |
| Hong Kong dollar | 7.753.00 | 7.752.00 | 0.02 |
| Source : Bloomberg | |||
Dealers said that the central bank, which has a policy against steep volatility and checking a sharp one-way movement of the rupee, intervened to ensure that there was no build-up of speculative activity in the domestic forwards market and the overseas non-deliverable forwards market. In any case, a sharp appreciation of the rupee can hit companies, which had expected the currency to hover around the 50-level against the dollar.
With the rupee appreciating, some exporters sitting with uncovered long positions, offloaded the dollar to ensure that the value of their holdings was not eroded significantly. As a result, the rupee strengthened further. Apart from public sector banks purchasing dollars on behalf of RBI, there was also demand from oil companies as the Indian basket for crude oil is above $55 a barrel.
According to Bloomberg, offshore contracts indicate bets the rupee will trade at 47.83 to the dollar in a month, compared with expectations for a rate of 49.70 at the end of last week. Forwards are agreements in which assets are bought and sold at current prices for future delivery. Non-deliverable contracts are settled in dollars rather than the local currency.
“Expectation of appreciation is alright but actual flows have to take place for the currency to rise. There was a build of speculative activity and this prompted RBI to intervene. What we saw on Tuesday was intervention on both ends (buying dollars as well as sales),” said a bank executive.
In the currency futures market, the one-month contract ended at 47.84 a dollar on the National Stock Exchange (NSE) as against 47.93 on yesterday. One-month contract on the Multi-Commodity Exchange (MCX) ended at 47.84 per dollar against 47.92 yesterday.
On NSE, volume in one-month tenure rose to 964,727 contracts, compared with 959,805 yesterday, while open interest position was down at 223,322 from 226,434.
Bonds dip
The 10-year bonds fell the most in a week after the government said it will increase debt sales this month, spurring concern additional supply will hurt demand.
Benchmark yields climbed from a one-week low after the government said yesterday that it will boost the size of two debt sales scheduled for the rest of May by 25 per cent. The government will sell Rs 15,000 ($3.2 billion) of bonds on May 22, and an equal amount later in the month, compared with an originally scheduled Rs 12,000 at each of the auctions.
“Yields are higher as the bond market has reacted to the announcement of additional debt supply,” said Srinivasa Raghavan, head of treasury at Mumbai-based IDBI Gilts, a primary dealer that underwrites government debt sales.
The yield on the 6.05 percent note due February 2019 rose 9 basis points to 6.40 per cent as of 10:28 am in Mumbai, according to the central bank’s trading system. The price fell 0.60, or 60 paise per 100 rupee face amount, to 97.51.
Call rates end steady
Call rates remained virtually unchanged on Tuesday as there was abundant liquidity in the system. Through the reverse repo window, banks parked Rs 1,15,700 crore with the Reserve Bank of India on Tuesday, as against Rs 126,985 crore yesterday.
According to data on the website of the Clearing Corporation of India, the weighted average call rate was 3.20 per cent, 2 basis points higher than yesterday, and 5 basis points lower than the reverse repo rate.
The overnight call rate ranged between 1 per cent and 3.35 per cent on Tuesday with the last yield of 3.25 per cent.
The weighted average rate in the collateralised borrowing and lending obligations segment was 2.76 per cent, as against 2.57 per cent yesterday.
While there is low demand for funds, banks also do not have cash requirement in the second week of the reporting cycle. With banks required to report compliance with reserve requirements every fortnight, there is frontloading of fund mop in the first week itself.
