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The Indian rupee bounced off a record low on Friday after the central bank sold dollars through state-run banks in an attempt to prevent the currency from further steep falls as the stock market dropped sharply. The partially convertible rupee ended at 48.38/43 per dollar, 0.8 percent lower than 47.99/48.01 at close on Wednesday.
Markets were closed on Thursday for a holiday. The rupee fell to a lifetime low of 49.30 per dollar in early trade, after which traders said the central bank acted aggressively to support it, selling up to $2.5 billion.
"It is a very difficult market, very thin liquidity. The RBI has now provided rupee liquidity by the CRR cut, so they are likely to keep intervening in the forex market," a senior dealer with a private bank said. The central bank's intervention has contributed to a squeeze on rupee liquidity in the domestic banking system that has pushed overnight cash rates to 19-month highs of 23 percent.
The central bank on Friday said it would increase a previously announced 50 basis point cut the cash reserve ratio (CRR) to 150 basis points, effective from October 11, saying the move would free up around 600 billion rupees. "The rupee could head towards 50 per dollar within this month, with the only things barring it is some decline in risk aversion among investors and steady gains in the stock market for at least three to four days," the dealer said.

Copyright Reuters, 2008

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