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Smooth start to RIB redemption, rupee at new high

Mumbai, Oct. 1: The redemption of Resurgent India Bonds (RIBs) began today with early signs of a lower outflow, sending the rupee to its highest close in over three years.

The bonds, floated by State Bank of India on August 5, 1998, would lead to an estimated foreign exchange outgo of $5.185 billion. This dollar stash has prompted SBI and its rivals like ICICI Bank and Union Bank to float deposits that seek to soak up some of these NRI funds. Bank officials say the last word on the deposit rates is not out. SBI chairman A. K. Purwar said some interest rates on NRI deposit schemes will be reviewed.

Though the volume of funds being returned to RIB investors remained modest, sources said a clear picture would only be available in a few days.

The SBI chairman said redemptions would begin from today, after the US markets open, and continue for 10 days. He said the entire process would be smooth — an indication of the Indian economy’s strength.

As the RIB clock ticked away, optimism swept the forex markets, where the rupee soared to 45.57 against the dollar. The last time it finished this high was on August 7, 2000.

“It seems that not much has flown out from the RIB redemption,” said an analyst, trying to gauge the reasons for the spurt. The rupee’s previous close was 45.83.

An inflow of $120 million from foreign institutional investors, coupled with bunched-up dollar supplies, was seen by many dealers as one of the big causes of the surge.

The RBI did not comment on the effect that the redemption of RIBs would have on the markets, beyond saying that the process was smooth. This, it said, was evident in absence of any volatility in the money, foreign exchange and securities markets.

The RBI had sold SBI the foreign exchange of $5.18 billion required to redeem RIBs. The amount covers principal and accumulated interest.

The entire foreign exchange liability under the RIB scheme has been fully met on the due date. Of the sale of $5.18 billion, the RBI has utilised its forward foreign currency receivables of $2.79 billion, while the balance $2.39 billion has been met from its foreign exchange reserves. SBI has paid the RBI Rs 22,151.83 crore to purchase the foreign exchange.

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