Thursday, February 14, 2008

Rupee at 2-1/2 month lows on dlr squeeze

he rupee fell to its lowest level in 2-1/2 months on Wednesday as a dollar shortage in the market and concerns about foreign funds selling stocks prompted banks to sell the local unit.

The partially convertible rupee ended at 39.76/77 per dollar after falling as far as 39.8950 in afternoon trade, its lowest since November 27. The rupee had closed at 39.66/67 on Tuesday.

"We've seen quite a lot of activity today, with supplies from the stock market reduced and importers buying dollars ... in addition to a lack of dollar supplies," said Rohan Lasrado, head of foreign exchange trading at HDFC Bank.

Foreign funds bought more than $17 billion of stocks last year, a key driver of the rupee's rise of more than 12 percent in 2007. But the funds have sold more than $3.5 billion so far this year as weak global markets heighten risk aversion.

That has led to a dollar shortage in the banking system, spurring dealers to buy dollars in the spot market and sell them in the forward market, pushing near-term currency forwards into discount.

Dollar/rupee forward premiums were quoting at a 0.03-3.20 percent discount for 1-5 months.

"That is why exporters are postponing their dollar sales, as they traditionally book their receivables when it is trading at a premium," the head of trading at a foreign bank said.

India's benchmark share index rose 2.05 percent on Wednesday, snapping a five-day fall, but dealers said most of the gains were due to local fund buying rather than foreign buying.

Data showed India's central bank bought $2.73 billion in intervention in December, taking its dollar purchases in 2007 to $74.9 billion as it tried to stem the rupee's more than 12 percent rise in 2007.

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