The forex market is expecting the rupee to rule steady for yet another week, as the dollar glut persists in both the spot and forward segments. The spot rupee is seen to be range-bound, moving between 35.80 and 35.85 against the American currency, and the forward dollar premium is not expected to cost over 3.5 to four per cent for six-months maturities.
Most of the action is likely to be found in the forward market. The rates on the forward dollar may remain soft as the plunging premiums make corporates take a dim view on the market. On the one hand, importers see no advantage in buying the forward dollar for future payments as they do not see the dollar strengthening. On the other hand exporters who are fearing a steadily weakening dollar are coming in aggressively to sell their expected remittances.
Last week, major corporates including Reliance Industries, which is not a regular player in the forward segment of the forex market, as well as other corporate clients of the State Bank of India (SBI) and other banks, entered the market aggressively selling dollars forward for maturities of June 1998. Forex dealers feel this is a sign that the market expects these low rates to continue.
The market is, perhaps, expecting a strong dollar for a fairly long period to come. This, the market players feel, is based on the expectations of steady inflows of a capital nature from foreign institutional investors, foreign direct investors as well as high volumes of ECBs, and NRI deposits have been pouring in.
Unless the RBI supports the forward dollar, the premiums may move at the softer end of the range as the exporters sell for various maturities. In the spot segment, the good dollar inflows have ensured that rates remained stable. The RBI has kept the rupee from strengthening over 35.80 levels by conducting passive purchases of dollars during the week.
This trend is expected to continue. The rupee is likely to remain strong as the month-end pressure from the SBI and other banks is not likely to be witnessed this week.