The rupee slipped to a new closing low of 48.70/71 to a dollar today, two paisa lower than yesterday's close of 48.6800/6900 on the back of banks' sustained buying interest. Reserve Bank of India governor Bimal Jalan's statement today to the effect that the central bank was not targeting any specific level for the rupee but was buying foreign exchange in a major way saw the rupee slide temporarily, a dealer with a public sector bank said.
Jalan, who was speaking to reporters at the sidelines of ICT India 2002, a conference on Information Technology and Telecommunications, said orderly conditions would be maintained in the currency market and that the central bank was actively buying foreign exchange from the market to boost reserves.
The rupee has lost over 0.3 per cent against the dollar during the week and nearly one per cent since January. The rupee hit the intra-day low of 48.7550/7650 yesterday.
"The central bank appears to be comfortable with rupee's depreciation. This will help Indian exports become competitive," said a dealer with a private sector bank.
Foreign exchange dealers explained that the RBI seems to have got active on the (dollar) buying effort in the face of a strong inflow of dollars over the last three months.
FII investments under the portfolio route have been particularly strong. FIIs pumped in a net amount of $47.5 million (Rs 227.9 crore) in December 2001, $145.9 million (Rs 699.3 crore) in January 2002 and $18.3 million in February (till February 2), according to figures released by the Securities and Exchange Board of India (Sebi).
Plus, there have been reports of significant FDI flows, especially in the telecom sector. As a result, the RBI has been desperately trying to mop up all dollar supplies (called sterilisation in the trade). Not doing so would have translated into the rupee appreciating against the dollar.
So the RBI's gameplan has been to prevent a rupee appreciation, while playing its hand so as to engineer a soft landing of the currency. The frantic dollar buying, through state-owned banks, has led to the country's foreign exchange reserves increasing by $27 million to $49.252 billion during the week ended January 25, 2002, according to the latest RBI data. In the earlier week, the foreign exchange kitty had soared by $298 million to cross the $49 billion-mark.
In the last two months beginning November 30, 2001 to January 25, 2002 the forex reserves have increased by $2.361 billion. Since the beginning of the financial year, there has been accretion of $6.971 billion (Rs 40,931 crore) to the foreign exchange reserves.
According to dealers, the RBI is likely to engineer the rupee's soft landing to a level "just below Rs 49 to a dollar." Breaching the Rs 49-mark would make banner headlines and spread a scare in the importer community, a dealer said. "At that point, it may not be all so easy to contain the panic, which then calls for heavy artillery," he added, noting "they have brought it down very softly from Rs 46.60 in early April (2002) to the current level of Rs 48.70."
The rupee is expected to touch 48.80/85 levels to the dollar in the coming week.
