MUMBAI, February 2: While most currency and stock markets rallied in Asia, the Indian rupee weakened against the dollar at the interbank foreign exchange market here on Monday. The Reserve Bank of India's strategy to intervene in the forward dollar market to cool the money market rates has paid off with interest rates in the call money market closing below the crucial 10 per cent mark.The rupee closed at 38.90 to the dollar, down from the previous week's close of 38.75. It had opened stronger at 38.65, but began weakening in less than an hour as the state-owned State Bank of India (SBI), prompted by demand for the greenback from Indian importers, bought the US currency.
Moving in tandem with the call rates were the forward premium on dollar which fell across the board and six month premia closed at 13.50 per cent -- down by 50 basis points over Thursday's close.
"Uncertainty has taken over the markets, and it is difficult to gauge where rates are headed for," P Mukherjee, Deputy general manager(treasury) said. In an unexpected move, the Reserve Bank's fixed rate repo drew in 987 crore at 9 per cent -- the highest in the past one month -- indicating that the market expects calls to remain at 9-11 per cent levels.
Call rates touched 140 per cent on January 17 after the Reserve Bank unleashed a package of measures to make domestic funds costlier after the rupee touched a all time low 40.45 and six month forwards had touched a high of 26 per cent (annualised).
The Reserve Bank has since than embarked on a strategy to cool the forwards and the money market rates by swapping with banks that wanted to sell spot dollars to raise rupee resources.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
