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Market shudders as sanctions genie emerges; yuan devaluation talk hits sentiment; rupee closes at all-time low of 43.5650/5750 vs $

• Rs 43.57 vs $
• Rs 46.50 vs euro
• Rs 70.51 vs pound
• Rs 39.06 vs yen (100)

The Indian rupee further slid by eight paise against the greenback on heavy corporate dollar demand at an active interbank foreign exchange market today.

The rupee opened steady at 43.4850/4950, witnessed continous slipping due to heavy corporate demand and ended sharply lower at 43.5650/5750, eight paise lower from the previous close of 43.4850/4950. Incidentally, this is the lowest ever close of the Indian unit.

Dealers said dollar buying by State Bank of India in the morning, which usually supports the rupee, also put pressure on market players to cover up their short positions. SBI reportedly sold some amount of greenback in the afternoon at around Rs 43.55 level.

There were fears that the United States would hold back some loans in response to India's announcement of a nuclear doctrine, dealers said.

Reports that the US sanctions imposed after the nuclear tests would continue and lending by international funds to India would be deferred, also put pressure on the Indian currency.

Forward premiums continued to rally and ended further higher on paying pressure. The sixth month and yearly annualised premiums closed higher at 5.00 per cent and 5.25 per cent respectively as compared to 4.90 per cent and 5.10 per cent.

Cash/spot finished at 2.25-2.50 paise premium while cash/tomorrowt ended at 1.75-2.00 paise premium. The month-wise premiums in paise were: August 5-7, September 22-24, October 40-41, November 56-58, December 72-74, January 97-98, February 112-114, March 133-135, April 153-155, May 172-174, June 191-194 and July 211-214.

The Reserve Bank of India fixed the reference rate for US dollar at Rs 43.55 as against Rs 43.47 of the previous day.

In the cross currency segment, the rupee declined sharply against pound sterling, euro and Japanese yen. Sterling ended at Rs 70.51 (69.67), euro at Rs 46.50 (45.75) and yen at Rs 39.06 (39.00).

At the interbank call money market, the call rates closed remained steady and closed at 9.90-10 per cent.

Media reports hinted that renewed fears of devaluation of the Chinese yuan also impacted the rupee. Dealers said the rupee may stay under pressure until these fears are allayed.

The rupee's level at 43.56/57 to US dollar is its lowest ever close. On August 19, 1998, the rupee touched an all-time low of 43.70, in the wake of the nuclear tests and subsequent economic sanctions.

Traders said they expect the rupee to test the 43.60 level when the market opens on Monday.

Whether or not the central bank -- the Reserve Bank of India -- defends the Indian unit at that level remains to be seen, they added.

Dealers said dollar inflows have become a trickle, squeezing liquidity and pressuring the rupee. Foreign institutional investors have been moderate in their deals due to the pre-election weak sentiment.

UNI, media reports

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