Re touches 9-year high against dollar

Re touches 9-year high against dollar

Prabhakar Sinha | TNN

New Delhi: The rupee breached a nine-year high of Rs 40.53 a dollar on Monday before closing at a lower level of Rs 40.87. RBI fixed its reference rate on Monday at Rs 40.57 per dollar, which is the highest level since May 1998.
Towards end of the day’s trading, a public sector bank resorted to heavy dollar buying. A senior dealer from a bank said as rupee came close to Rs 40.50 per dollar, there was apprehension that RBI might intervene in the market. So, when the buying came from a bank, market reacted sharply thinking that it was on behalf of RBI.
Late in the day, many traders rushed to cover their sold positions in dollars. This pushed the dollar rates and Re closd at Rs 40.87. Marketmen feel the rupee might decline in the early trade on Tuesday. They feel RBI is not comfortable with rupee trading at below 41. Therefore, if it falls sharply RBI might start buying dollars.
The rupee has gained around 8.5% since the beginning of 2007 on the back of foreign exchange inflows. RBI bought $19.7 billion in four months to February-end to stem the rupee’s rise. But, this led to infusion of rupee, which increased the liquidity, and in turn, fuelled inflation. Then, since RBI remained absent from the forex market to contain inflation.
A senior banker said, with inflation at 5.73%, it is unlikely that RBI will buy dollar. But, at around 40.50, there is demand for the greenback from refiners and other importers. This would not let the rupee appreciate above Rs 40.50 in the near future. A senior banker said that according to one expectation, inflation should come down below 5% in the next four weeks. Therefore, the big importers are trying to make use of the present condition to corner substantial amount of dollar for their future consumption.
Credit Suisse said the rupee appreciation might continue for some more time. It said by next month rupee might appreciate by 1-2%.