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Rupee inches back towards 7-year peak

The rupee ends firmer as dealers sell the greenback following RBI’s monetary tightening measures, reports Vyas Mohan.

business Updated: Apr 03, 2007 21:10 IST
Vyas Mohan
Vyas Mohan

The rupee ended firmer on Tuesday, inching back towards a seven-year high as dealers sold the greenback following the Reserve Bank of India’s monetary tightening measures.

The rupee hit an intra-day high of 43.25 per dollar, according to Reuters data, close to a seven-year high of 43.01 recorded on March 28. The rupee ended Tuesday at 43.45/48 per dollar on Friday, after falling 1.7 percent on Thursday on suspected central bank intervention. Analysts say banks, which are badly in need of liquidity, are selling dollars to increase rupee holdings.

“It was expected after the monetary tightening, especially the CRR (cash reserve ratio) hike. Banks are squeezed for liquidity and in the process, are reducing dollar holdings in the spot market to generate rupee liquidity,” says Gaurav Kapoor, senior economist at ABN Amro.

This could be bad news for exporters, especially those selling information technology solutions, as more than 70 per cent of their revenues come from the US. As an immediate effect, an already battered technology counter in a lacklustre market is expected to take a hit.

“IT stocks could go down tomorrow. A strong rupee pushes down the profitability of IT companies as they earn a chunk of their revenue in dollars,” says Madhukar Sheth, a BSE broker.

There is a strong rumour in the market that of late, the Indian central bank has been buying the US dollar in huge quantities to keep the rupee fairly weak so as exporters are not severely hit.

After the market closed on Friday, the central bank lifted the short term lending rate (repo) to 7.75 per cent and also increased the proportion of deposit that banks have to keep with it as cash, by half a percentage point to 6.5 percent, siphoning off about Rs 15,000 crore from the banking system.

First Published: Apr 03, 2007 20:30 IST