Re stays high on huge $ inflows

The rupee again ended at a 9-year high today, as exporters sold dollars on views that inflows will continue to be strong as Reserve Bank of India left the limit on external commercial borrowings unchanged in its monetary and credit policy for 2007-08 (April-March).

The rupee ended at 41.1600 per dollar, up 51 paise from 41.6700 on Monday. "Many were expecting some move on ECBs to restrict the rupee's rise. But that did not happen and exporters sold," said a treasury official from Tata Consultancy Services Ltd.

"Many exporters had not hedged exposures expecting the rupee may depreciate," the official added.

In last six months, the rupee appreciated by more that 9 per cent, backed by strong inflows from foreign funds and supply from exporters.

"Some exporters and banks were caught on the wrong side after RBI's monetary policy. They reversed their positions and sold dollars," said a dealer with an U.S. bank.

The central bank also reduced its tolerance level for inflation to 4.50 per cent from 5.00-5.50 per cent.

This spurred more selling from banks and exporters because it reinforced the belief that the central bank may stay away from intervening in the forex market, as buying dollars increases rupee supply and thereby, exerts upward pressure on inflation.

Other than intermittent dollar demand from oil companies and profit-booking by importers, there was no major demand to restrict the rupee's rise as most companies preferred to wait for cheaper dollar/rupee rates.

Market players ignored comments by RBI Governor Y V Reddy that a higher amount borrowed under Market Stabilisation Scheme would enable the central bank to intervene in the forex market.

RBI today hiked the amount that can be borrowed under the MSS to Rs 950 billion in the current financial year from Rs 800 billion.