Weekly Forex Market Report : Aug 21st - Aug 25th
The forex market saw a mixed trend this week. In the first half of the week, the rupee was a bit stable due to the RBI instructions to the exporters to convert their 50% balances held in EEFC accounts. But only $ 400 million came to the market against the expected $ 1 billion. This was because the exporters sold dollars and bought them back to meet their import requirements. In the second half of the week, there was huge demand for dollars from the exporters because they felt the rupee was not going to appreciate once exporters had converted their EEFC balances. This caused a panic among the importers and they started buying dollars, which caused the rupee to fall. However rupee ended the week with some appreciation following RBI's statement of no immediate revision of interest rates. The detailed report follows:
Friday, 25th August
The rupee ended the day at 45.845/855, up by seven paise from its previous close. The rupee opened the day in a weak range at 45.94/98 and was traded at 45.935/965 in early deals. The spillover of dollar demand by corporates and importers, from the previous day was the reason for rupee opening weaker. However following a statement from a senior Reserve Bank of India official that the central bank was not looking at changing interest rates in the near future which were hiked on July 21, rupee showed some appreciation. The official also ruled out any plans by the RBI to review the EEFC accounts. The market was of the view that the central bank may scrap the EEFC account facility for exporters. Rupee firmed up in the afternoon to 45.87/89 and further strengthened towards close due to continued absence of heavy corporate dollar demand.
Thursday, 24th August
The rupee ended the day at a new record low of 45.91/92, down 13 paise from its previous close. It opened the day at 45.87/90 touched an intra–day low of 45.95 before closing at this level. There was huge demand for dollars from the importers as they felt that the rupee was not going to appreciate more than yesterday’s level. There were some supplies of dollars from other centers but that was of little help and was immediately absorbed in the market. The Delhi and the Calcutta markets were closed on Wednesday due to a religious festival. So the demand from these markets also came today. The operators were of the view that the RBI’s instructions to the exporters to convert their 50% dollar balances held in EEFC accounts into rupees has only delayed the depreciation of the rupee. ICICI was in the market, selling dollars to convert the dollar proceeds from its ADS issue into rupees. Some banks had taken short position in the rupee hoping that the rupee would appreciate in response to the RBI’s measures. But when that didn’t happen, they were also in the market squaring off their positions. That caused the rupee to fall further.
Wednesday, 23rd August
The rupee ended the day at 45.78/79, down by 10 paise from its previous close amid huge dollar demand from the importers. It opened at 45.68/70 and was quoted at 45.67/69 in early morning trades. Today was also the end of the deadline for the exporters to covert the balances in their EEFC accounts into rupees. So the importers felt that the rupee is not going to appreciate beyond today’s level and started buying dollars. The RBI was expecting an inflow of $ 1 bln. but as per the unofficial figures only $ 400 mln. came to the market because most corporates sold dollars and bought them back again to meet their import requirements. The measures announced by the RBI don’t seem to have much of an effect on the forex market as the desired amount of dollars didn’t come to the market. There were also no PSBs in the market to supply the dollars that were demanded by the importers. Therefore, the rupee closed weak.
Tuesday, 22nd August
The rupee ended the day at 45.68/69, marginally down from its previous close. It opened at 45.61/66 and was quoting at 45.62/65 in early trades. There was dollar selling from the exporters even on Tuesday because the deadline for converting their balances in EEFC accounts was 23rd of August. When the importers saw the rupee settling at a steady level, they started buying dollars in the afternoon trade. There was also some demand from some of the state run banks. This caused the rupee to fall marginally towards the end.
Monday,
21st August
Monday was a holiday in the Mumbai markets on account of Parsee New Year but at rest of the places, the market was open. The rupee ended the day slightly higher from its weekend close at 45.65/68. It opened at 45.73/75, touched an intra day high of 45.64 before closing at this level. Due to holiday in Mumbai market, the trading volumes were very thin and there was virtually no demand for the dollars as most of the importers buy dollars from the Mumbai market. The exporters came to the market to convert their balances in EEFC accounts into rupees. This helped the rupee to prop up.
Rajneesh Mittal