BOMBAY: Indian rupee remained strong against the U.S. dollar after India made its currency fully convertible on trade account against the dollar. The Convertibility decision was announced by finance minister Manmohan Singh in the course of his budget proposals placed in parliament on Feb.27.
The rupee closed at around $3.1350 per Rs 100, in sharp contrast to last Friday’s close of 53, 0350 on budget eve. At the peak, the rupee even touched $3.1450 per Rs 100.
Market men disclosed that the first quotation in the morning was by way of a probe al $3.00, which was quickly changed. The rupee was quoted at around $3.06 and $3.05 per Rs 100 thereafter according to some sources, by the first hour’s trading the rupee had gained fast to reach $3.10 per Rs 100.
Along with the spot rate, the forward premium has also significantly dropped, reflecting greater long-term confidence in the rupee. The forward premium has hovered around 15.5 to 15 cents for six months’ cover. In the light of Tuesday’s trading some dealers feel the forward premium should fall. The ideal level should be around 10 cents for six months’ cover, they say.
The Reserve Bank started quoting its rates after almost an hour’s trading $3.1120 for selling and $3.1280 for buying. The rates were changed twice during the day by the RBI in step with movements on the interbank markets.
The close rates appear to have sewed around the rate quoted later in the day by the RBI, of $3.1220 and $3.1380 per Rs 100. The rates in the Indian market were very closely in line with those reached during some internal transactions among banks in the Middle East centers on Monday.
Sources point out that the Middle East markets had quoted between $3.05 and $3.12 per Rs 100 in transactions. [Tis widely expected these rates should prevail in the short run, until the market adjusts to long-term rates.
The opening of the foreign exchange market saw entry of exporters in a big way. The exporters had stayed away from the market for almost all of last fortnight on rumors of full convertibility on trade account. They expected the rupee to depreciate substantially and book gains on exchange rate fluctuations.
The market sources heaved a sigh of relief at the surprisingly firm behavior of the Indian rupee. While there was some volatility in the opening hour, the gyration remained within a fairly narrow groove by the standards of the fluctuations seen in mid-February, however, seasoned exchange market experts feel the market will further evolve and gain maturity.
Article extracted from this publication >> March 5, 1993
