India Central Bank Buys Dollars to Stem Rupee Rise

By SHYAM KUMAR

MUMBAI: The Reserve Bank of India (RBI) has stepped up dollar buying to arrest the Indian rupee's rise on the back of a rise in foreign direct and portfolio investment, bank dealers said March 13.

"The Finance Minister said he is looking to as much as $10 billion in foreign direct investment (in a year) in his budget," Sunil Sharma, Chief Forex Dealer at ANZ Grindlays Bank said.

"People are getting positive on the rupee--the economy is doing well and the stock markets are looking up," he said. Unlike in the past, there was no nervous dollar covering preceding the budget presentation, February 28, dealers said. "Over $300 million should have come in after the budget in FII (foreign institutional investor) inflows and ECB draw-downs," said Himanshu Bhat, Treasury Manager at the Indian operations of Bank of Nova Scotia.

ECB is external commercial borrowings by Indian firms. An issue of global depositary receipts by Indian overseas telecommunications monopoly Videsh Sanchar Nigam Ltd is expected to bring over $500 million before March 31.

The RBI is believed to have bought over $150 million from the spot and forward markets as part of its efforts to arrest the rupee's rise, March 12.

The RBI said its foreign currency assets were $20.09 billion, March 6. "During the current financial year (1996/97 April to March) so far, the foreign currency assets increased by $3.04 billion despite outflows to the extent of $1.23 billion towards redemption of India Development Bonds," it said, March 8. In his budget speech, Finance Minister P Chidambaram said India had met some of the preconditions for making the rupee fully convertible on the capital account, and asked the RBI to prepare a 'road map' for the rupee's full float.

The rupee has been stuck at the 35.85/86 level since late last year except on occasions when it briefly touched 35.95. The rupee's stability and apparent immunity to the dollar's recent appreciation against leading currencies has led to a sense of complacency among Indian importers, who have virtually stopped covering their risks.

A robust rupee has prompted Indian exporters to sell their dollars. September dollars now command a premium of between 1.28/1.36 rupees, dealers said.

"Most exporters are reconciled (to an overvalued rupee)," RK Das, Chief of Forex and Treasury at Adani Exports Ltd, a leading export firm, told Reuters.

He said exporters were compensated to an extent by a government decision in the budget to withdraw the minimum alternate tax on export profits. RBI will continue to intervene to stop the rupee's rise but a resulting boost to the monetary growth was a constraint, RBI Governor C Rangarajan said this week. (Reuter)

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