The rupee slipped 45 paise yesterday to close at a new low of 42.22-25 after State Bank of India (SBI) withdrew support for the Indian currency at 41.80 to a dollar. On Monday, the rupee had closed at 41.79-80.
With the important psychological barrier of the 42 level having been breached, market sources expect the downward pressure on the rupee to intensify in the coming days. The rupee has already depreciated 6.15 per cent over the past one month. This effectively means that import-sensitive industries like steel will now get protection to the extent of 14 per cent if the eight percent import duty is added to the rupee depreciation.
When the market opened yesterday morning, SBI offered an initial quote of 41.78-80 and then went off the market almost immediately. The rupee immediately slid to 42 and then traded at an all time low of 42.26. SBI later bought dollars between 42.13 and 42.17 and then capped the rupee by quoting 42.19-24.
A section of the market now expects the rupee to be capped at 42.25. The RBI's reference rate was 42.15 per dollar, against 41.80 on Monday.
In keeping with the volatility in the spot market, forward premiums moved up and then declined to close near Monday's levels. For instance October was quoted at 168-173 and then declined to 160-165.
Yesterday, the one-month premium closed at 8.50 per cent (8.08 per cent on Monday), the three-month at 9.92 per cent (9.78 per cent), the six-month at 10.03 per cent (10.04 per cent), and the one-year at 10.06 per cent (10.18 per cent).
Taking advantage of the high premiums, banks were also arbitraging between the money and forex market. There was some amount of receiving in the forwards . These two factors, to a certain extent cooled the forward market.
