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Rupee hits record low of 49.30 per dollar

Posted by Yogesh on Saturday, 11 October, 2008

The rupee fell to a record low of 49.30 per dollar in panicky early trading on Friday as the spreading global financial crisis hurt sentiment in Asian stock markets, heightening concerns of large outflows from India.

But heavy dollar selling by state-run banks, on behalf of the central bank, and a deeper than first planned cut in banks’ cash reserve requirements (CRR) pulled the currency off the lows.

By 12:18 p.m., the partially convertible rupee had pulled back up to 48.63/67 per dollar but was still 1.3 per cent weaker than Wednesday’s close of 47.99/48.01.

Thursday was a market holiday and the rupee opened 1.65 per cent down before extending its fall to 2.7 per cent.

Heavy dollar selling by state-run banks on behalf of the central bank, at around 49.20 per dollar, then pulled it off its lows, traders said.

“There is complete panic and mayhem in the markets,” said U. Venkataraman, head of treasury at Mumbai-based IDBI Bank.

Three dealers at different banks said volumes were extremely thin and the difference between quoted bids and offers widened to 0.10-0.25 rupees, with large companies staying on the sidelines.

One-month offshore non-deliverable forward contracts were quoting at 48.55/48.70, stronger than the onshore rate.

The previous all-time low was 49.07 in May 2002, according to central bank data. At its low, the rupee has fallen 20 per cent this year after rising more than 12 per cent in 2007.

Asian stocks plunged on Friday, with Japan’s Nikkei down 24 per cent in the week, while the US dollar rose to a 14-month high against a group of major currencies, on panic that global efforts so far have failed to stop financial chaos from spreading.

India’s main stock index fell more than 9 per cent, joining the global selloff. Foreign funds have sold a net $10 billion worth of Indian shares this year.

The central bank said it was cutting the cash reserve ratio to 7.5 per cent from 9.0 per cent on Saturday, instead of to 8.5 per cent as announced on Monday.

“The CRR cut underlines the central bank’s intention that is going to sell dollars heavily into any sharp falls,” said a senior dealer at a foreign bank.

But the cut, which is expected to inject 600 billion rupees into freezing money markets, did not have a calming effect on overnight fund rates.

Overnight rates jumped to 23 per cent, the highest in more than 19 months, before easing to around 20 per cent, well above the central bank’s main lending rate of 9 per cent.

Dealers said banks were not willing to lend as many had not met their reserve requirements for the fortnightly reporting of their cash balances to the central bank and those banks with surplus funds were unwilling to lend. Source The Financial Express

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