New Delhi/Mumbai: The Reserve Bank of India (RBI) could intervene in the foreign

exchange market to arrest the appreciation of rupee which affects exporters and
raises macro economic challenges. According to a finance ministry official, RBI
may step in if the rupee strengthens above 43 a dollar.
The rupee has climbed 3.5% in the past month as foreign fund flows into Indian s
tocks reached a record $23 billion this year. Countries from Japan to Brazil hav
e sold their currencies to keep exports competitive.
On Monday, though, the rupee snapped a three-day winning streak as the dollar s ga
ins versus major currencies overseas weighed. But hopes for capital inflows stay
ed firm, with the launch of Coal India s Rs 15,000 crore initial public offer expe
cted to attract significant foreign investment.
Rupee closed at Rs 44.36 a dollar on Monday, 0.6% below Friday s close of 44.10. T
he dollar bounced from a 10-month low against a basket of currencies . We think r
oom for further appreciation of the INR is limited, as short USD positions are s
howing signs of being overstretched and the RBI is likely to join other Asian ce
ntral banks in trying to limit currency appreciation, analysts at Barclays Capita
l wrote in a daily note.
RBI governor Duvvuri Subbarao has said that it will intervene in the forex marke
t if inflows turn lumpy.
RBI is believed to have bought dollars on Thursday, intervening in the forex mar
ket after a gap of eleven months. The last time the RBI attempted to influence t
he exchange rate was in November 2009, when it sold a net $36 million, according
to RBI data.
Analysts expect FIIs oversubscribing to the Coal India IPO, bringing in further
inflows.
The finance ministry is not in favour of curbing capital flows from overseas but
plan to protect exporters.
Infosys Technologies last week called for capping the currency s strength, saying
rupee volatility will kill exports. The Federation of Indian Export Organisations
called for a mechanism to exclude hot money blamed for rapid appreciation and prev
ent the distortion of the exchange rate. Nomura Securities economist Sonal Verma s
aid there is now much more scope for the RBI to intervene in the currency market
.
Free money is fuelling global risk appetite and capital inflows into emerging mar
kets. We expect interest rates in the developed world to remain close to zero un
til the second half of 2012. In addition, an expansion of quantitative easing in
the US and the UK is in prospect....

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The major players are____
?Individuals: tourists, migrants
?Firms: importers and exporters
?Banks: short position, long position, square position
?Governments/ monetary authorities: market intervention
?International agencies: lending
?Two tier market:First tier: ultimate customer and banker
?Second tier: between banks ?Classifications of participants__ ?Non-banking enti
ties: business transactions and hedging
?Banks: foreign exchange dealers
?Arbitrageurs: profit seeking from variations in rates in
different markets ?Speculators: profit seeking from movements in exchange