Currency futures mkt's dollar frenzy stalls RBI hand

The rupee today closed at its lowest level ever at 53.82 to the dollar.  The last closing low was 53.64 on December 15, 2011 when the rupee had touched an intraday low of 54.30.

Dealers now believe this will be the next support for the rupee. CNBC-TV18's banking editor Latha Venkatesh explains the day's run of the rupee. Below is an edited transcript of Latha Venkatesh's analysis on CNBC-TV18. Also watch the accompanying video
It was expected that when the GAAR clarifications would come there would be a period of stability and even strength, for the rupee. But then a lot of investors unwound their long dollar positions or went outright short on the dollar with the Greek situation worsening. And what looked like the FIIs legging it out today, though there are no confirmed reports, some dealers say that FIIs bought dollars.
The developments led to all those dollar shorts coming and covering in a hurry. This led to a buying spree with oil companies, FIIs and companies joining the fray. This put a squeeze on the supply position which was held by exports and the RBI.
So now all eyes are on 54.30 and it remains to be seen if this will be defended psychologically and physically by the RBI. An important development in the last few weeks that came to a head today was the role played by the currency futures market.
The currency futures market, normally dominated by commodity traders, brokers and a few companies, has really grown in size. Usually after 4 o'clock a normal RBI action in the OTC market can push the dollar any which way.
Today, that did not happen today because there was such a huge buying of dollars in the currency futures market that the RBI action in the OTC market was withstood and currency futures actually held sway. That's a market to watch. Some dealers believe that probably this will mean more controls on currency futures from the RBI or the SEBI.
On the other hand, there are concerns that the government and the RBI do not have many tools left. The government is left with little options after having opened up the NRI and the foreign currency non-resident (FCNR) segments.
So now the government has to take tough decisions like pricing diesel correctly. But these are very long-term measures and politically very difficult. These are difficult times, indeed.