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Rupee recovers to 47.88/$ after plunge; outlook weak: Reuters

The rupee finished Monday at a new low, recovering from a fresh lifetime trough after heavy dollar sales by some large state-run banks.

Currency traders speculated the dollar sales were at the behest of the central bank, and said it led to other banks offloading dollar positions.

The rupee ended at 47.83/88 per dollar, off a new lifetime low of 48.43 hit earlier.

Dealers said the State Bank of India was in the market and quoted two-way prices throughout the day as usual.

Dealers said Monday's lows, the seventh straight day of decline for the rupee, were triggered mainly by inter-bank buying of dollars.

They said the outlook for the rupee remained bearish and its direction will depend on the actions of state-run banks.

"There will be some initial dollar bids on Tuesday, and on an immediate basis what matters most is what state-run banks do and what foreign funds are up to," a dealer with a foreign bank said.

"Unless there is a an unexpected sharp reaction, the behaviour of regional markets and the movements in US markets after their long closure is of secondary importance," he said.

The BSE Sensex closed down 5.27 per cent at 2,680.98 points on Monday, off 2,640.58 -- the lowest since November 1993.

The rupee slid last week on dollar demand from foreign funds and importers amid growing concerns that expected US retaliation to Tuesday's terror attacks could increase risks in the region, traders said.

Banks scrambled to offload dollars as the rupee firmed, they said.

The six-month premium closed at 7.02 per cent, down from intra-day highs of 7.26 per cent, but firmer than Friday's close of 5.65 per cent.

At its lowest on Monday, the rupee had slipped 61 paise from Friday's record closing low of 47.81/83, taking the fall this month to 2.68 per cent and total losses so far in 2001 to 3.65 per cent.

At that level, analysts said the rupee was nearly 2.5 percent undervalued in real trade-weighted terms against major trading partners, after the sharp gains the Japanese yen and euro have made against the dollar in recent days. It had been overvalued at the start of the month.

Intra-day report

The rupee continued to touch new lows in nervous Monday afternoon trade on growing concerns that US retaliation to last week's terror attacks could increase risks in the region, traders said.

In afternoon trade, the rupee touched a fresh low of 48.38 to the dollar. It opened weaker than Friday's record closing low of 47.81/83, its sixth straight record close.

Despite the central bank's assurances about liquidity, steady inter-bank dollar buying contributed to the rupee's sharp fall, traders said.

Dollar sales by state-run banks were also muted, adding to the pressure on the rupee. State-run banks usually act on behalf of the central bank, dealers said.

At its lowest, the currency has lost 1.17 per cent on the day, 2.6 per cent from the start of the month and 3.6 per cent from the beginning of the year.

Earlier the central bank, in a move to increase liquidity in the money market and calm bond prices, said it will open a purchase window for select government bonds on a daily auction basis between Tuesday and Friday.

It said this was in view of the extraordinary circumstances in the bond market in the wake of the rupee's fall to record lows and uncertainties over last week's terror attacks in the United States.

The latest statement follows the central bank's assurances made at the weekend, which had failed to deter the bearishness.

On Saturday, the Reserve Bank of India said it expected "any temporary hiccups to disappear and markets to function normally as soon as the present international uncertainties become clear".

It also said it would watch markets very closely and was prepared to intervene directly or indirectly if required. Record foreign exchange reserves in excess of $45 billion, gave it "more than adequate" liquidity, it added.

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