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Home > Business > Business Headline > Report

RBI calm despite volatile forwards

BS Banking Bureau in Mumbai | May 10, 2003 13:58 IST

The Reserve Bank of India is "unperturbed" by the volatility in the forwards segment of the rupee-dollar market.

"Looking at the euro-dollar exchange rate, I think the volatility there is far greater," RBI Deputy Governor Rakesh Mohan said.

With the frequent and sharp volatilities in the euro and the greenback in overseas dealings, the local forex market was more stable, Mohan added.

He was speaking to reporters on the sidelines of the 167th annual general meeting of the Bombay Chamber of Commerce and Industry.

The crash in forward premiums across the spectrum to new lows followed heavy booking of forward contracts by exporters on fears that the rupee would strengthen further.

However, the RBI deputy governor said there was no shortage of cash dollars in the domestic foreign exchange market on Friday.

"There is no change in our stance on foreign exchange management. The RBI has a certain posture, as stated in our various monetary policies, and we are continuing with it," he added.

The rupee appreciated further on Friday, ending at a new twenty-and-a-half month peak of 47.1850/1950, against 47.24/2425 per dollar Thursday.

However, forward premiums saw some corrections, after dipping to ridiculously low levels. The six-month annualised forward premium closed stronger at 1.26 per cent from yesterday's close of 1 per cent.

Mohan said rates were determined by the market, and cautioned that "we would not like large volatility".

Meanwhile, the euro jumped to a new high against the yen today and hit a four-year peak against the dollar. This followed the European Central Bank's decision to keep interest rates on hold.

The yen has gained around 4 per cent against the dollar in two weeks, raising concerns that its strength might increase prices of Japanese products abroad and dampen the country's exports.

The euro has been on the rise since April as global investors pour funds into the currency due to its higher-yielding edge over the dollar.

Moreover, Europe's interest rates -- the benchmark being 2.5 per cent -- are double the Federal Reserve's funds rate.

The euro rose as high as 1.1537 against the dollar, a fresh four-year high and up a half cent from around $ 1.1480 in late US trade. Dealers said the next target was $ 1.16.


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