Re Likely To Strengthen, Forwards Steady

FOREX Market

The rupee is expected to strenghten against the dollar this week as the month-end pressure from the corporate sector eases. According to dealers across banks, it should rule between 35.85 and 35.93. The forward premiums should remain fairly steady in an inactive market with the six-month annualised ranging between seven and eight per cent. Trading volumes are expected to remain normal in the spot market. The month-end pressure which quite suddenly picked up in the last week saw the rupee appreciate from 35.85-86 at the start of the week to 35.90 last Friday, is not likely to be witnessed this week.

At best, banks expect the normal level of corporate demand. Moreover, the SBI which is the major purchaser of the greenback in the market, is not expected to be actively present as oil majors normally make their purchases towards the end of the month. According to a treasury chief with a foreign bank, corporates might enter the market to make some pre-budget purchases of dollars. This could see the rupee rule above 35.88. The supply of the American currency is also not expected to be higher than normal. Many banks expect the Reserve Bank of India to mop up any excess dollar supply in its attempt to shore up its forex reserves for the second redemption of the India Development Bond which is slated for February 15. The dollar component of the redemption is expected to amount to approximately $ 900 million. The RBI is particularly likely to enter the market when the rupee strengthens to 35.84 to 35.85 levels. In the forwards the premiums are expected to rule steady. Last week saw some paying pressure exert some

pressure on the premium. This paying pressure came from several sources. Firstly, many corporates booked the dollar forward particularly for March, April and July. Secondly, many corporate clients whose forward contracts had matured had sought to roll them over.