Dollar Hunt By Banks Keeps Spot Rupee Grooved

Dollar-buying by state-run banks held the rupee rock steady today in the 47.97-47.9825 range, while forward premiums shoot up following the Fed rate cut.

The spot rupee opened in the 47.97/9725 band and weakened marginally to close in the 47.98/9825 region. The currency had ended yesterday at 47.9750/9850.

There was large dollar supplies from a lubricant firm but the inflows were offset by dollar-buying from public sector banks. State Bank of India was the most prominent dollar buyer, dealers said.

A dealer with a private bank said, "It seemed that public sector banks were buying on behalf of the Reserve Bank of India (RBI) and protecting exporters' interest."

Forward premiums rose by 15-25 basis points after the Fed rate cut. The six-month premium closed at 6.41 per cent against yesterday's closing of 6.24 per cent, while the one-year premium jumped to 6.22 per cent (6 per cent).

A dealer said: "The market expected a 25 basis point cut in the Fed rate and discounted it yesterday. However, as the cut was by 50 basis points, premiums rose today."

According to dealers, trading volume in the forward market was high.

The rupee is likely to remain stable and be traded in the 47.95-48 band tomorrow. A dealer with a private sector bank said, "The RBI wants the rupee to be around the 48-mark and it will hold the currency at that level by supplying or sucking dollars through state-run banks."

Forward premiums will remain stable with an upward bias. A dealer with a foreign bank said, "Given the US economic condition, the Fed Reserve is likely to cut the rates again in December.

However, the market does not expect the RBI to cut the rates in such short intervals though it will maintain its bias towards soft interest rates. In this situation, there will be an upward pressure on the premiums."