The spot rupee closed at 36.32-37 yesterday after the Reserve Bank of India propped it up by selling an estimated $50 million in the spot and forward segments of the forex market. The RBIs intervention steadied the rupee after it had slipped to 36.43 against the dollar.
However, the premiums hardened due to strong importer demand. The six-month premium closed at 7.72 per cent, up from 7.4 per cent on the last trading day, while the one-year closed at 7.15 per cent, against the previous close of 6.81 per cent.
The effect of the volatility in the forex market spilled over to the government securities market, with prices of all securities declining across the board. Some stray deals were struck at a discount in the 10.85 per cent 2001, 11 per cent 2002 and 11.19 per cent 2005.
The price of the 12.59 per cent 2004, which has been the most active security, also fell from over Rs 107 to less than Rs 104 before recovering to Rs 104.25 by the end of the day.
After the rupee opened at 36.25-30, nervous sentiment pushed it down to 36.43 by 11:00 am. At this point, the RBI sold forward for September, steadying the spot and forward rates. For the rest of the day, most of the deals were stuck between 36.32 and 36.37.
As pressure mounted in the evening following short-covering by banks, the RBI re-entered the market to sell spot dollars.
Forward premiums closed sharper as import covering continued. February closed at 129-139 paise while July closed at 230-260 paise, compared with Thursdays figures of 115-130 for six months and 215-230 for one year respectively.
The bank strike scheduled for August 28 and 29 is likely to result in increased dollar demand today and tomorrow. With a long week-end coming up, banks may stock up dollars as they remain unsure about where the rates will rule next week. As a fall-out, banks will forgo the interest income they would have earned by holding rupees instead for five days. Meanwhile, corporates may buy dollars to meet their weekly requirements.
The Foreign Exchange Dealers Association of India yesterday informed banks to settle all forex transactions for value date August 28 and 29 on August 27. On account of the strike, the RBIs forex clearing house will remain closed.
While nationalised banks are expected to keep away from trading, foreign and private banks may continue trading in the cash and forward segments.
In the money markets, banks may off-load securities to meet reserve requirements, since the current week is the second half of the fortnight. This will exert further pressure on security prices. Alternatively, banks may report on Saturday.
No communication has been received in this regard. However, the impending strike may affect the money markets on Saturday when banks will be unsure about where the rates will rule.
