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Rupee falls as FIIs pull out dollars
July, 04th 2008

Negative signals from the equity market, amidst soaring crude prices, pulled the rupee further down from Wednesdays levels.

The local currency ended the day at 43.30/31 against the dollar, weakening from the previous close at 43.17/18 levels. Market sources said that the major factors influencing the fall were foreign investors pulling out money from the stock market and repatriating their dollars.

A trader with a private bank said, There was heavy dollar-selling by one foreign bank, which took the rupee to the days high of 43.19. However, traders maintain a bearish sentiment for the local unit in the absence of any specific direction to the rupee as such. Things have become even more uncertain now that the central bank is not protecting any specific level as such, said the trader.

Forward premia on near-term contracts also dipped, with the one-month contract ending the day at 6.75% (7.38%). The six-month contract slipped to 4.54% (4.94%) while the annual contract ended the day at 4.01% (4.24%). Meanwhile, bond yields rose after global crude prices rising to new highs fuelled further inflationary concerns. Yields on the 10-year benchmark bond ended the day at 8.82%, rising from Wednesdays close of 8.78%. A dealer with a private bank said, Trading was extremely thin and market sentiment was further hit by crude prices rising to new highs.

Rising crude prices have given rise to concerns of further monetary tightening by the central bank. The RBI had raised both the repo rate and cash reserve requirements by 50 basis points each last week, which caused bond yields and call rates to rise.

Liquidity conditions, which have been under a strain with banks borrowing amounts in excess of Rs 30,000 crore for the past couple of weeks, eased off on Thursday.

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