Rupee at fresh 9-year high on fund flows

MUMBAI: The rupee on Monday scaled a fresh nine-year peak, with many foreign funds entering the country. The local currency ended the day at 39.77 versus the dollar. After having risen to nearly 39.72 levels during the day, the rupee ended lower on account of significant intervention from the central bank. The rupee had opened the day at 39.85 levels.

Treasury managers reckon that a surge in foreign inflows also due to the 281 point-rise in the Sensex will make it extremely challenging for the RBI to prevent the rupee from growing stronger. Traders in the forex market are confident that the rupee on Tuesday will open stronger at 39.70 against the greenback.

Tracking a rising rupee, premia on the forward contracts came crashing down. The yield on the one-month contract closed at 0.80%, much lower than Friday’s close of 1.34% levels. The yield on the six-month contract ended at 0.81% (1.21%), while that on the one-year contract ended at 1.03% (1.38%).

Explained a senior treasury manager, much of the fall in premia was largely due to exporters, who were seen hedging their receivables. The central bank is estimated to have bought between $700 million-1 billion on Monday in a bid to curb the rupee from rising further.

The cash condition was seen easing as rates on the inter-bank call money market, as rates ended at 6.15% after having hovered around the 7.50%-mark since last week. Rates in the CBLO market closed at 4.90%, while the repo market saw rates closing at 5.50%.

However, trading volumes were extremely low in all the three markets. While the call market only saw deals worth Rs 1,739 crore, the market for collateralised operations had deals worth Rs 3,389 crore being struck. The repo market saw transactions worth Rs 20 crore.

Banks, which had borrowed Rs 1,200 crore from the central bank on Friday, ended up lending Rs 4,495 crore on Friday at the reverse repo window, all of which was mopped up by RBI.Prices of government bonds dipped by 30 paise, as yields rose in anticipation of tightening cash flows in the banking system. The yield on the benchmark paper, the 7.99% bond maturing in 2017, ended at 7.86% against Friday’s closing levels of 7.82%.

These expectations were based on the fact that the central bank announced auctions of bonds under the market stabilisation scheme on Friday evening after market closing hours.