The forex market saw new all time lows touched by the rupee this week. There was genuine dollar demand in the forex market from the importers and the corporates and also from the foreign banks who were buying on behalf of FIIs, who have remained net sellers in the Indian equity markets. Friday saw the rupee touching its all time lows. After the close of the market, the RBI came into action on Friday. It increased the bank rate by 1%, CRR by 0.5% and reduced the refinance limit for the banks by 50% to curb the volatility in the forex market. Due to these measures, we expect the rupee to stage a rally on Monday. The detailed report follows:

Friday, 21st July

There was a panic in the forex market as the rupee touched its all time lows against the dollar as the persistent dollar demand continued to exert pressure on the rupee. The rupee opened the day at 44.90/91, touched an all time intra - day low of 45.01 before closing at an all time low of 44.90/91. In early trades, the banks took long positions in dollar in anticipation of dollar demand from the corporates. The rupee has been under pressure due to genuine dollar demand from the corporates for quite sometime now. Major part of the dollar demand came from the foreign banks, which were believed to be buying on behalf of FIIs. The RBI came into action after the close of the markets. It increased the bank rate by 1%, CRR by 0.5% and reduced the refinance facility of the banks by 50% to check the volatility in the forex market. Due to these measures, we expect the rupee to stage a rally on Monday.

Thursday, 20th July

The rupee closed at a new all time low of 44.89/90 after late dollar supplies from a State run bank towards the close pulled the rupee back from its intra day low of 44.925. The rupee was close to its all time low of 44.95 recorded on June 9th but at that point of time a State run bank entered the market with dollar supplies and quoted lower. The demand for dollars was still there towards the close as evidenced in the unofficial dealings after the close of the market. Most of the demand was from the foreign banks who were buying for the FIIs making remittances as they pulled their money out of the Indian stock markets. FIIs sold $57.1 million worth of equity on Wednesday and have cumulatively sold $258.3 million worth of stocks in July till date.

Wednesday, 19th July

The rupee was under pressure on Wednesday and ended weaker on heavy dollar demand from the corporates and foreign banks. The rupee ended at 44.7775/78 and was just short of touching the key 44.80 level after state run banks came to the market and supplied dollars. The rupee has fallen 15 paise since end June and such a sharp depreciation in an otherwise stable currency is causing anxiety among the corporates. All the major banks are receiving queries about the forwards as the importers and corporates want to cover their exposures. The weakness could be temporary since the demand was suspected to be for the short term only after which the rupee should again stabilize. There is also a shortage of dollars as the FIIs have been net sellers in the month of July till now. The foreign funds have sold $201 million worth of shares in the Indian capital markets in the month of July.

Tuesday, 18th July

The rupee fell by 3 paise to close at 44.75 against the dollar as against its previous close of 44.7150/72 amid huge dollar demand from corporates and the FIIs. There has been genuine dollar demand from the corporates and the FIIs in this week which has exerted severe pressure on the rupee. The rupee opened weak at 44.7350/7425 and traded in a narrow range. Towards the close, the rupee suddenly dipped low as there was a huge demand from the importers and corporates. At that point of time, the SBI and some other State run banks came into the action and sold dollars but that was not enough to prevent the fall of rupee. The forward premia closed higher with 3 month forward premia closing at 3.60% against its previous close of 3.55%.

Monday, 17th July

The Rupee ended the day marginally lower at 44.7150/7200 against its weekend close amid fresh dollar demand from importers and corporates. The rupee opened unchanged from its previous close of 44.6975/7050 and touched an intra-day low of 44.7250/7300 before it again firmed up against the Greenback. Banks were into action in the forex market. The State run banks were buying dollars on behalf of PSUs whereas the foreign banks bought dollars for FIIs. But adequate dollar supplies accumulated over the weekend due to export proceeds and remittances fulfilled most of the demand and prevented the rupee's fall. The SBI came into action when the rupee breached the crucial 44.73 to a dollar barrier and sold dollars in the market, which checked the fall in the rupee.

Rajneesh Mittal