RBI buys dollars to halt rupee's rise: report

14 Oct 2010

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The Reserve Bank of India (RBI) is reported to have bought dollars, perhaps for the first time this year, in a move to halt a steady rise in the value of the ruppee. RBI is said to have bought dollar at Rs44.10 against its reference price of Rs44.18.

RBI raised the reference rate for the European single currency Euro to Rs62.25, against Rs62.09 the previous day. It kept the reference rates for the British pound at Rs70.6504 and for the yen at Rs54.41 per 100 units.

RBI, which has been reluctant to intervene in the foreign exchange market, had last week hinted that it might be forced to intervene in the market if foreign currency inflows tend to become volatile.

In the local forex market, the rupee hit a high of 44.09 against the dollar and was trading at 44.16/17 a dollar in afternoon trade.

The rupee is seen to have dropped to a low of 44.25 immediately after the dollar purchases made on RBI's behalf, traders said.

Large rupee buying for the share issues of state-run firms in the absence of rupee flows in the form of both private and government spending has only helped to tighten liquidity in the banking system.

State-run firms, including Coal India Ltd, Power Grid Corp and Steel Authority of India, have lined up stock issues worth several billion dollars and these are expected to attract heavy foreign fund inflows.

This is expected to push the rupee up to 43.50 a dollar and force further interventions, dealers said.

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