Dollar Inflows Spur Spot Surge, Forwards Falter

The rupee today closed firm at 47.8050/8150 against the dollar, compared with the previous close of 47.8175/8250, on the back of healthy dollar inflows from both the trade and capital accounts.

Today's close was off a three-month high of 47.79 to a dollar. Forward premiums eased today even after the Fed rate cut of 25 basis points to 1.75 per cent.

The Indian unit opened at 47.81/82. At mid-session, the Indian unit rallied to 47.79/795 to a dollar. Banks, across the board, were selling dollars, looking to take advantage of the high swaps over the approaching long weekend, followed by an European bank's sales.

However, late purchases by public sector banks capped the appreciation, a forex dealers with a pirvate sector bank, said. According to dealers, the state-run banks were buying on behalf of the Reserve Bank of India (RBI).

A dealer with a foreign bank said: "Since the beginning of the week, the public sector banks have been restricting the rupee from strengthening beyond the 47.80 mark, and today was no exception."

Softening of yields in the government security market helped premiums to come down. The six-month premium closed at 6.35 per cent, compared with yesterday's closed of 6.45 per cent. The 12-month premium ended at 6.05 per cent, down from yesterday's closing of 6.15 per cent.

"This is an unusual phenomenon as premiums generally harden after the Fed rate cut. However, as the market expects the RBI to cut the repo rate following the Fed decision, premiums came down," said a dealer with a private sector bank.

Dealers said the rupee is expected to weaken tomorrow in early morning deals as the spot rate adjusts for the shift in settlement date to Tuesday as the forex market will stay closed on Monday. Forward premiums will remain stable with a downward bias as the yields of government paper may come down further.