Export Inflows To Prop Re, Forwards May Track Gilts

The spot rupee is likely to remain in the band of 48.95 to 49.10 during the week. According to the forex dealers, there can be pressure on the rupee because of border tensions, but some export proceeds are likely to enter the market which can strengthen the currency as well.

However, it will be the Reserve Bank of India (RBI) which will decide the rupee volatility by supplying or buying dollars through the public sector banks.

Forwards are expected to track the volatility in the government security market. According to the forex dealers, the expected range for the six-month annualised premiums is 5.70 per cent to 6.05 per cent.

A dealer with a foreign bank said: "The Indian forex market is no more a free-float market. It is just a softer version of the fixed exchange rate. Whenever the currency is trying to move up and down influenced by the market forces, to the displeasure of the central bank, it prevents the movement. We do not expect any thing of that sort even during this week as well."

In the forward premium market, the liquidity will support the rates. However, as the border uncertainty may push up the government paper yields, premiums can go up as well. The volume in the market will remain thin during the week.

On Friday, the rupee closed at 49.0175/0275 against the dollar, little changed from Thursday's closing level of 49.00/01. The Indian currency opened at 49.01/02 and hovered in a band of 49.01 to 49.03 during the day. It could have closed at a higher level but for some corporate demand for dollars in the dying hours. The six-month annualised premium closed at 5.93 per cent as against 5.88 per cent as on Thursday. The rise in forward premium rates was in tandem with the increase in the yield of government security during the day.