The sustained inflow of foreign investment pushed up the rupee to a yet another nine-year peak of 40.28 against the US dollar on Monday. However, with the RBI intervening, it closed at 40.5175.
Even as the rupee strengthened, RBI governor, participating in a seminar in far away Tokyo, predicted inflation, already on the downslide, would come down close to 3 per cent, even though the officially stated goal is a rate of 4 to 4.5 per cent."Well before the medium term, we should be able to bring it closer to 3 per cent," Reddy declared.
The rupee breached the psychological barrier of 40.50 against the dollar in the morning session following foreign inflows in anticipation of a couple of large initial public offerings (IPO) expected to hit the domestic capital market during June 2007.
However, foreign banks were seen selling the dollars in line with the present trends showing hardening of the rupee in the near term. Exporters resorted to selling of forwards resulting in lower forward rates.
DLF is expected to raise over Rs 10,000 crore between June 11-14, while ICICI Bank is expected to hit the market 10 days later to raise Rs 20,000 crore ($5 billion) in a simultaneous issue in domestic and foreign markets.
Even capital market sentiment was hit when there were rumours that the rupee may touch 39 against dollar. This sent the market into a tailspin taking 100 points off the BSE Sensex’ intra-day peak.
However,not all are comfortable with pegging the rupee at that level. “Analysts are giving a range of Rs 39-41.30 for the rupee in the next few weeks. But that depends on the stand RBI takes on the market,” Paresh Nayar, Chief Dealer-Forex of Development Credit Bank.
RBI had been intervening in the market whenever it touched an unacceptable level to it. This is to protect the rupee at a level where it will not hurt exporters.
However, foreign exchange expert Jamal Mecklai said, “the RBI would not be in a position to intervene in the market in the same way it did over the last four years. The trend is strong for the rupee, while dollar’s is getting weaker internationally.”