MUMBAI: The rupee edged closer to the 50 mark against the dollar at 3pm, and was trading at 49.96 against the dollar . The decline which began on
Tuesday, continued for the second day. Some dealers said certain state-run banks sold dollars to prevent the rupee from dropping further. The local unit had closed at 48.66 on Tuesday.
"The lack of any stimulus in the interm budget has greatly soured the mood for capital inflows and in turn for the local currency," says Dilip Raghuwanshi, chief forex advisor at Asit C Mehta Securities, a forex brokerage. "NDF arbitrage too has begun in the earnest with the mood souring for the local unit," he said. Dealers say there is good support for the dollar-rupee around 49.45-50 while there could be some dollar selling coming in around 49.80.
Dealers said most of the arbitrage was concentrated in the one-month forward contracts. The one-month forward contract was quoting at 50.27 on Wednesday afternoon, weaker than the onshore spot rate. This would mean a clean 30-40 paisa arbitrage. BSE sensex was down 0.3% to trade at 9010.
Banks regularly buy dollars locally and sell them offshore to take advantage of the high price differential, weakening the rupee in the spot market.
Bonds are trading range bound, with the yield on the new benchmark and old benchmark falling 5 bps (to 6.09%) and 10 basis points (6.40%) due to nervousness about the announced higher borrowings for the next fiscal. This gain in bond prices is after three straight days of falling prices.
However dealers said mood was good ahead of the central bank's open market operation on Thursday to buy back bonds. RBI said last week it would conduct open market operations through an auction based mechanism for injecting liquidity ahead of Rs 12,000 crores of bonds on February 24.
Liquidity was good with call money available to banks at a weighted average of 4.14% for the day, near the reverse repo rate, as per CCIL.
