Outlook : Currency

Rupee is likely to remain range-bound..

The rupee is likely to remain in a tight band of 48.64 to 48.70 per dollar this week. Dealers foresee inflows from non-resident Indians (NRIs) and foreign investors continuing. And they expect the Reserve Bank of India (RBI) to absorb most of the greenbacks.

Inflows from exporters may not be very high during the week as the dollar has shown signs of gaining strength against other major currencies last week.

Exporters would prefer to wait and see whether the dollar continues to rise and only in the case of a reversal should they start bringing in their greenback holdings. The demand for dollars from importers will be low this week due to the continuing industrial slowdown. Jewellery manufacturers may buy some greenbacks ahead of the festive season.

But dealers said the slowdown, the drought in some parts and heavy rains in other are likely to affect local jewellery purchases, which will result in lower gold and diamond imports.

Inflows through foreign investors and NRIs will continue as they will try to take advantage of the increase in spreads between the Indian and US interest rates.

The RBI will not let the rupee appreciate from its current levels to protect the exporters. Growth in Indian exports has not been adequate and any appreciation of the rupee against the greenback can only bring down the export growth further.

..ditto forward premiums

Forward premiums will remain around their current levels because of two factors. During this week there is possibility of a further cut in the US Federal Reserve rate.

The Reserve Bank of India (RBI) is unlikely to react to this, as the RBI governor Bimal Jalan has already said interest rates in India and United States are not linked. This will increase premiums on the forward dollar.

However, on the other hand, the liquidity condition in the banking system will continue to be good.

And the outlook on the rupee against the greenback is still positive and this certainly will goad the premiums down.

A forex dealer said both the six-month annualised and the one-year forward premium should be in a band 4.50 per cent to 4.60 per this week.