Greenback Unloading Lifts Re, Premiums Retract

The rupee strengthened further today to close at 47.9600/ 9650 compared with yesterday's closing of 47.9900/9950 on the back of heavy dollar sales by banks. Forward premiums went down as the money market interest rates softened further.

The local currency opened at yesterday's closing level of 47.9900/9950, but strengthened towards the close. "Friday being a bank holiday many players sold heavily today. Moreover, there was good supply of dollars through remittances. This helped the rupee to go up against the greenback," a dealer with a foreign banks said.

According to a dealer with a private sector bank, it seemed that the banks had already covered their month-end demand. This also spurred the rupee to strengthen, he said.

Dealers said foreign banks were the most prominent sellers of dollars followed by private sector banks.

Forward premiums closed lower as against yesterday. The six-month premium closed at 6.19 per cent compared with yesterday's closing level of 6.20 per cent. The one-year premium dropped to 5.85 per cent from yesterday's closing of 5.93 per cent.

"The fall in premiums was the reflection of the dip in call rates which closed below the repo rate of 6.50 per cent today. However, as the US interest rates remained soft too, the fall was not too sharp," a dealer with a private sector bank said.

The rupee is likely to strengthen further tomorrow. "We expect the supply of dollars through remittances to remain steady. Moreover, as public sector banks refrained from buying dollars in the last two days, we expect the currency to strengthen tomorrow," the forex head of a private sector bank said.

Forward premiums may remain stable with a downward bias as the interest rates in India and the US are poised to decline further. Dealers expect the six-month premium to be in the 6.15-6.20 per cent band and the one-year premium in the 5.85-5.90 per cent range.