INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

RUPEE LOSES 23 PAISE TO END AT LOWEST LEVEL THIS YEAR

   THE rupee ended the day at 46.09 — its lowest level in '06 — losing nearly 23 paise compared to Friday's close of 45.88/89. Taking a cue from the depreciating rupee, bond markets witnessed the yield on the ten-year benchmark paper a 4-year high of 7.65%.

After opening at 45.92 levels, the domestic currency breached the 46-mark for the first time in this calendar year, touching an intra-day low of 46.09. Treasury managers at banks see the rupee dipping to 46.20, on the back of the demand from oil companies, month-end pressures and foreign institutional investors (FIIs) — the traditional dollar suppliers turning sellers.

The situation is unlikely to improve unless Reserve Bank of India (RBI) intervenes by selling dollars, said a senior treasury official at a public sector bank. Last week on Thursday, the rupee had fallen sharply to 45.94 levels against the dollar in intra-day trade. On Monday, the currency broke the psychological barrier of 46 against the dollar. Forward premia ended the day lower with the yield on the six-month premia closing at 0.63% (0.70 %) and that on the annualised premia ending at 0.87% (0.89 %). In the bond markets, the benchmark 7.59% '16 opened the day at Rs 99.85, while the yield at the opening was 7.61%. The total volume of traded securities stood at Rs 1,680 crore. Trading extremely lacklustre with no deals occurring till late afternoon, informed a senior bond market dealer. Treasury officials attributed the dip in yields to the weakening of the rupee, expectations on the oil price outcome and the market awaiting the announcement of an auction of government bonds worth Rs 10,000 crore, scheduled in the first week of June.

The rupee's fall against the dollar triggered concerns that RBI may tighten rupee liquidity to prevent further depreciation. Bond yields have been hovering at about 7.60% over the past week after the government indicated an possible hike in fuel prices. The RBI mopped up bids worth Rs 59,930 crore at the reverse repo auction under the two sessions of liquidity adjustment.