Mumbai, Sep 20 (UNI) The rupee dropped modestly by nine paise to settle nearly two year's low at 45.82 against US dollar at the week-ended yesterday, as compared to 45.73 the previous week, on heavy dollar buying support by banks and other operators.
Reassuring comments by the Finance Minister P Chidambaram about the financial health of the Indian lenders also partly aided the rupee sentiment in early stages during the last two-three days, a leading dealer said.
In a widely fluctuating trade, the rupee rose past the 46-mark per dollar during the week, but ended low at 45.82, buoyed by a rise in the domestic stock market, even as tight cash conditions forced banks to borrow a record Rs 83,510 crore from the central bank through repo operations. Banks have been consistently borrowing funds in excess of Rs 50,000 crore from the central bank in the past week, as a result of tightening cash conditions, a leading broker said.
Rupee fluctuated in a broad range between 45.52 and 46.99 per dollar during the week, but the transaction was lesser about ten per cent compared to previous week.
However, dollar demand from oil firms continued to pressure the rupee downwards, dealers said. Refiners, the biggest buyers of dollars in the local currency market, have been trying to meet import requirements, as oil prices have started rising again.
Dealers said offshore-related dollar demand from banks also hurt the currency. Banks generally buy dollars locally and sell offshore to take advantage of the high price differential.
One-month offshore non-deliverable forward contracts were quoted at 46.79/89, 0.8 per cent weaker than the onshore spot rate, providing a good arbitrage opportunity.
Selling of dollars and unwinding of short-term forward contracts by exporters boosted the sentiment for the local unit. The rupee ended the day at 45.82 against the dollar, strengthening from the Thursday's close of 46.42/43. There was keen dollar selling interest in the market today, and for a change, it wasn't driven by the central bank, said a senior dealer with a private bank.
The rupee's recovery was led primarily by a jump in indices across Asia, with the BSE Sensex also ending the day 726 points in the green. Some foreign banks were also seen selling dollars, on account of foreign investment inflows as well as probable unwinding of forward contracts.
The domestic currency slumped to a two-year low of 46.99 against the dollar on Tuesday, mainly on account of foreign banks buying dollars in the spot market while selling them simultaneously in the overseas non-deliverable forwards (NDF) market, to arbitrage the rate differential between the two markets.
RBI also announced the auction of Rs 1,500 crore of treasury bills with two separate tenures for Wednesday. Overnight call rates ruled higher than usual. Inter-bank call rates ended the day at 12.5 per cent, after touching a high of 15.5 pc, after transactions worth Rs 20,134 crore were carried out.
According to market sources, some banks could have borrowed from RBI at the standard repo rate of nine per cent, and then lent out those funds in the overnight markets at higher rates.
UNI AR SSS SKB1942