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29 January 1998

Re sinks again; call rates fall

ENS ECONOMIC BUREAU  
MUMBAI, January 28: After Tuesday's strong recovery in the rupee value, the foreign exchange and money markets went into a tizzy on Wednesday as the spot rupee weakened by 40 paise against the dollar and interest rates in the inter-bank call money market crashed to close at 11 per cent. Six-month forward dollars fell by 200 basis points.

The spot rupee, which has been strengthening against the dollar, lost ground by 40 paise to close at 38.78, weaker than yesterday's close of 38.39.

``Exporters were missing from the market as the underlying pressure on the rupee has still not weakened. SBI was buying dollars on behalf of its corporate clients,'' dealers said.

Six-month forwards closed at 14 per cent - down from 16 per cent on Tuesday. RBI sources said that the bank would be intervening in the forwards to conduct swaps as it would cool forward rates apart from cooling overnight call rates. ``We do not think that the rates prevailing in the forwards and the call market are reasonable. They should comedown,'' sources said.

Dealers said this is the first time call rates have softened after the Reserve Bank announced a series of measures to tighten domestic interest rates to provide stability to the Indian currency, which had touched an all-time low of 40.45.

Reserve Bank sources said that they were aiming to bring down forward premia through intervention so that overnight call rates could come down to "reasonable levels". Call rates had zoomed to 140 per cent - the all-time high level - after the Reserve Bank's decision to hike the cash reserve ratio to 10.5 per cent and Bank Rate to 11 per cent from 9 per cent.

Call money opened at a high of 50-60 per cent on Wednesday and then came down a little. By afternoon they were down to 20-30 per cent and by close the rates were in the region of 11 to 12 per cent. Most of the deals were struck in the region of 20 to 30 per cent. ``Some stray deals were also struck in the region of 50-60 per cent,'' said a dealer from the Securities Trading Corporation ofIndia.

According to dealers, interest rates crashed drastically because the reporting Friday the day after. "There was not much demand from borrowers as most of them had covered their positions. Some of the banks which had surpluses became lenders. The borrower banks which turned lenders today were mainly nationalised public sector banks," said a dealer. The market was packed with lenders, including institutions and MFs.

``Intervention by the RBI to supply liquidity to banks has helped cool the markets. The RBI has been absorbing dollars from the market while releasing rupees, and this is reversed in the forwards through swaps,'' said an analyst.

Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.



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